If you watched business news channels or read thousands of pages from investing publications and websites last week devoted to the economy and the stock market, you would have thought the fate of the civilized world hinged on the word patient.
The Federal Open Market Committee, the arm of the Federal Reserve that basically controls the flow of money in this country the way you might manage water flow to your flower bed, has used this normally bland word seemingly forever as the country continues to right itself from the Great Recession.
Then it dropped the word last week. Judging by the reaction anticipating this earth-shattering event, you would have thought the world was coming to an end.
The end of the world
“Bolt the doors,” yelled the talking heads. “Board up the windows,” cried the hucksters selling the next big market crash and, of course, how you can profit from it. “Bite your fingernails to the quick!” screamed the headlines, anticipating that the FOMC would finally bury this all-important word.
What did all this screaming and moaning mean to you, the typical 401(k) plan investor or casual economic participant? Interest rates—held exceedingly and artificially low for so long—would finally rise. The cost of everything you buy would increase (because, of course, you have imagined the price hikes in the supermarket for the past few years). Stocks would tank. And . . . .
On second thought, never mind. Interest rates won’t begin to increase until . . . . well, throw a dart at a 12-month calendar.
The Streets: a world apart
Poll 100 people and 99 won’t have a clue what the FOMC is or what it does. The money moves it’s made since 2008 helped prevent the U.S. from sliding into a Depression and triggered a torturously slow jobs recovery. The committee, however, doesn’t write in a way most humans can understand.
Take this example from the Federal Reserve—the Fed— published about two months ago: “. . . the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.”
Not bad, right? Now try this one from the same statement: “The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate.”
Riddle me this
Forgive the writers of these examples, for they are economists. They speak in riddles as a matter of course. Market pundits, unfortunately, have picked up the Fed’s penchant for making the simple complex. They’ll tell you how a company’s stock missed its earnings forecasts, and its stock price is getting trashed because earnings were only $22 gazillion last quarter instead of $23 gazillion.
Or maybe they’ll tell you trailing earnings will disappoint, and the consensus forecast drops a stock from a “buy” to a “hold.” Maybe that’s because a correction was overdue or alpha fought beta while the CEO paid an extra $5 for a manicure and the company buckled under the load factor. And, by the way, don’t forget to bottom-fish while you wait for the triple witching hour.
Meanwhile, Wall Street’s emotions are broadcast ad nauseam. “The Street is upset with the Fed’s action,” or “The Street is loving Google’s earnings report.” The Street, in fact, bears little resemblance to Main Street, where the little investors reside. Everything is upside down.
And, by the way, any street is an inanimate object. It just doesn’t have feelings, no matter how you spin it. On the other hand, the millions of Americans who were thrown onto the unemployment rolls—not literally, of course—during the Wall Street-induced Great Recession did have feelings.
The Rabbit Hole
The fact is that we and they—that old rascal Wall Street again—don’t speak the same language. That’s why mass layoffs can thrill Wall Street and stock investors, while not exactly making the single mom who received a pink slip jump for joy. That’s why Wall Street frowns when gas prices drop, hurting the stocks of energy-related companies, but smiles, when you and millions of others average one percent pay, increase the past six years. Hey, lower personnel costs mean better operating performance and more for stockholders.
So how do you, the average 401(k) investor or occasional stock dabbler, decipher what you read and hear?
If you invest for the long term, which most of us should do, stay the course. Don’t react to headlines or screamfests shouting jargon-filled doom and gloom at you. As with anything else in the world of news, it leads if it bleeds. So tune it out. Or turn it off.
Instead, make sure you write down your long term goals. Adjust as life changes—because if life does anything, it changes. Determine, perhaps with a financial professional, how much risk you can accept from your investments. Go to this site to learn more about investing, if you’re interested.
And then don’t panic.
No one can time the market. If you invested in a way designed to meet your goals over your timeframe with the risk that is appropriate to your situation, you have done everything you can do.
Only then can you chuckle while those around you scratch their heads as financial-speak puts them into near-comas.