It was another bloody week in the stock market (Standard & Poor's 500 index dropped 3.1%), and any glass half full of data was interpreted as half empty.
The week was epitomized by a Citigroup ( C ) report entitled " World Economy Trapped in a Death Spiral ." A sluggish monthly jobs report on Friday, which registered a less-than-anticipated addition of 151,000 jobs, painted a weakening employment picture . Professional social media site LinkedIn Corp. ( LNKD ) added fuel to the fire with a soft profit forecast, which resulted in the stock getting almost chopped in half (-44%) in a single day (ouch).
It's funny how quickly the headlines can change - just one week ago, the Dow Jones Industrial index catapulted higher by almost 400 points in a single day, and we were reading about soaring stocks .
Coherently digesting the avalanche of diverging and schizophrenic headlines is like attempting to analyze a windstorm through a microscope. A microscope is perfect for looking at a single static item up close, but a telescope is much better suited for analyzing a broader set of data. With a telescope, you are better equipped to look farther out on the horizon, to anticipate which trends are coming next. The same principle applies to investing. Short-term traders and speculators are great at using a short-term microscope to evaluate one shiny, attention-grabbing sample every day. The investment conclusion, however, changes the following day, when a different attention-grabbing headline is analyzed to a different conclusion. As Mark Twain noted, "If you don't read the newspaper, you are uninformed. If you do read the newspaper, you are misinformed."
Short-termism is an insidious disease that will slowly erode short-run performance and if not controlled will destroy long-run results as well. This is not a heretic concept. Some successful investors have preached this idea in many ways. Here are a few of them:
'' We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen.
On the flip side, those resilient investors who have succeeded through investment cycles understand the importance of taking a long-term view.