Ignore the Noise, Focus on the Future

During the past few days, all of the major broadcast television networks, as well as numerous cable news programs, focused their news coverage on the recent political unrest in Egypt, and several so-called “experts” that appeared on those broadcasts stated, definitively, that Egypt’s economy would be affected by the turmoil there. Although those “experts” didn’t say whether they expected Egypt’s economy to be positively or negatively affected by the large scale government protests in Egypt, their comments had a clearly negative connotation.

As a result of the situation in Egypt, several investors with whom I spoke during the past few days told me that they were considering selling their stock market holdings.

Although I understood those persons’ concerns, I urged the investors with whom I spoke to ignore the media’s coverage of Egypt, and I encouraged them to focus instead on the continuing improvements in the U.S. economy. In addition, I urged those investors to consider some potentially positive outcomes of the situation in Egypt. That’s because stock prices have, historically, rebounded much more often than they’ve declined following the occurrence of the types of events experienced in Egypt during the past few days. In fact, over the past 71 years the Dow Jones Industrial Average, which serves as a good proxy for stock prices in general, was higher three months after the occurrence of a major negative geopolitical event than it was one day before the occurrence of such an event; see the table below.

That’s not surprising to me, because significant economic developments tend to have much more impact than short-term geopolitical developments on the long-term direction of stocks.

Unfortunately, the general media’s focus on topics that attract people to their “stories” rather than on intellectual discussions of the potential longer-term outcomes of certain geopolitical events often leads people to make foolish investment decisions.

I, on the other hand, always consider the potential long-term repercussions of important geopolitical events, and I regularly monitor factors and developments that tend to give reliable clues about the future direction of stock prices instead of overreacting to often irrelevant and meaningless information.

Because an increasing number of those factors indicate that economic conditions around the globe will continue to improve and that worldwide economic growth will accelerate during the months ahead, I urged the investors with whom I spoke during the past few days to take advantage of the recent pullback in stocks by adding to their equity holdings. After experiencing some big advances in their stock holdings during the past two days, several of those investors phoned to thank me this morning.

Going forward, I urge you to ignore most of the noise that’s presented by the general media and to focus more of your attention on the potential long-term consequences of certain political developments.

And, I urge you to keep in mind that many so-called “news” organizations are more interested in getting you to watch their broadcasts than in keeping you informed about important economic, financial, and geopolitical developments.

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