Archive for January, 2012

Out With the Old, in With the New…

New Years has always been a time for all of us to reflect on the year that has passed and look forward with optimism to the year ahead. This single cliché can be applied to just about any situation. I had this in mind when I was approached by a gentleman who engaged me in a conversation about the different hosts and guests who comment about the market on TV.

After discussing the accuracy and thought process of several different guests and hosts including Jack Welsh, Warren Buffett, Jim Cramer, and the late, great Mark Haynes, I was asked about where the gentlemen would go wrong with their views about the market. I think the gentleman was trying to get me to critique each of the styles of the different personalities.

As I thought about this, I came up with what I believed was a bit of a common theme in terms of a criticism in the thought process of these personalities. As I pondered the way these different personalities viewed the stock market and the US economy, I realized that for the first time in the history of the market, experience was their weakness! Not lack of experience mind you, but, the fact that they have too much experience!

You see, most stock market gurus rely on what has happened in the past to predict the future. Obviously, market technicians (chart readers) have to rely on history as technical analysis relies on finding reoccurring, historic pricing patterns. But even the fundamental analysts rely on how the market reacted to economic data in the past to determine how it would react today. This is their undoing!

Today’s US markets are NOTHING like what they were 5 years ago! Thus, all of the experience gained from 40, 50 years in the market has become more or less outdated. What was true back then is no longer true. As a matter of fact, reliance strongly on what happened many years ago to predict what might happen today could lead you in the wrong direction. It has occurred quite often to these and many other “experienced” market veterans. Today, their past often works against them and their experience may betray them!

The reason behind this is the fact that we have entered a phase of unprecedented globalization. More and more countries’ economies are going through industrialization faster than ever before. These new or emerging economies are maturing much faster than those that preceded them due to the influence of those already mature economies looking for new, additional opportunities. The different economies of the world are becoming more and more intertwined and dependent on each other.

Although a new development in the course of history, this intertwined effect is not an aberration but the new normal. It is uncharted waters and is producing effects on the US market that are new and unpredictable. Thus, the experience of veteran market professionals is not as reliable as it once was. A new experience is going to have to be gained over time and may be a painful adjustment for some old veterans.

As these thoughts passed through my head, another gentlemen asked me, in one sentence, to sum up what I thought would be the best advice I could give to an investor ready to get 2012 rolling. Out with the old and in with the new was my advice. Get rid of those old thoughts and experiences acquired through years of trudging through the US markets and adjust to the new. A new dawn awaits the US markets and the other global markets as well. Be prepared to continually learn and draw insights from the new experiences. Out with some old ways and in with the new!

2012 promises to be a really new year!