“If you spend more than 13 minutes analyzing economic and market forecasts,” the famous investor, Peter Lynch, once remarked, “you’ve wasted 10 minutes.”
I found myself thinking about Lynch over breakfast recently as I was skimming financial headlines in the newspaper.
Lynch was a ‘numbers guy’ who understood the limitations of numbers. And through daily practice, I’m also trying to do that.
By the way, here are some forecasts I read today…
“See Nifty moving towards 5300”
“Inflation will come down by March 2012”
“India’s 2011-12 growth seen at around 7.5%”
“Economy may improve in Q3, Q4”
It seems as if every man and his grandmother is busy forecasting about where the economy and stock markets are going over the next few weeks, months, or years.
And everyone else is worried about such forecasts.
See, it’s lovely to know in advance when the economy is going to slow down, or inflation is going to rise, or when the Sensex is going to hit the 20,000 mark again.
But I don’t remember anybody predicting the 2008 crisis or that India’s inflation will remain high at 10%+ levels for such a long time. I wasn’t able to do that myself!
I don’t remember any of that being predicted. It just happened.
As an investor, you ought to look at the whole collection of economic numbers with skepticism. They are not accurate. They can never be accurate.
It is a great mistake to sit around thinking about things like GDP, unemployment, inflation, and the whole lot of junk that gets reported and commented on by nearly everyone.
I believe you could be a very successful investor without looking at the inflation index in your life. In fact, they may do you harm by making you afraid to invest when the economic picture seems dim…or reluctant to sell because it is bright.
What should you spend your time on?
Keeping abreast of world news is good practice regardless of whether you are an investor or not. I learnt this practice from my father, who is an avid reader of business papers and magazines despite not being an active investor himself.
But for long-term investors (not speculators or traders), focusing too much on the buzz of Greek debt, or France’s credit rating, or the possibility of another round of quantitative easing, or what those business channel experts have to say about the direction of the market can put you at risk.
It’s like distracted driving.
Sure, you can get away with a phone call here and there. But the more time you spend texting or talking while driving, the more likely you are to miss a turn, or to find yourself suddenly parked on top of someone walking on the street.
So, instead of worrying about economic or stock market forecasts that don’t matter at all, you should spend your precious time trying to know what’s happening on the ground – with the companies whose stock you own or want to own.
If you own auto stocks, you ought to be very interested in used car prices.
If your own hotel stocks, you ought to be interested in how many people are building hotels.
If you own stocks of steel companies, you ought to be interested in what’s happening to inventories of steel.
If your own stocks of consumer goods companies, spend time studying what’s selling and what’s not in a shopping mall.
These are the important facts you, as an investor, must try to look out for.
But that crystal ball stuff – forecasting where the stock markets or the economy is headed? That doesn’t work. It’s a waste of time.