Missing the forest for the trees is, of course, a well-known and common problem. Less well-known perhaps is the opposite problem: missing the trees for the forest.
Barron’s takes on this issue when it points out that excessive worry about the market and the economy (forest) can prevent you from noticing the plethora of good stocks around (trees). Even if the economy is crummy and returns from the market are not enticing, there may be plenty of opportunity.
…why do investors accept a return that is guaranteed to lose out to inflation for the safety of principal on U.S. government debt when they could garner payouts from blue-chip companies that ought to keep pace or exceed inflation and presumably provide capital growth?
The fact is that macroeconomic data and policies to influence the economy are having little impact on what’s really important to equity investors, corporate performance. Yet rarely has there been more attention focused on macroeconomic data and policy decisions.
Clearly, the solution is to focus with blinders on what really matters to equity investors — earnings and dividends, and the price they pay to participate in those sums.
The reason for this, writes David P. Goldman, former head of credit research at Bank of America, is there are two U.S. economies. “One is dead in the water and the other is doing reasonably well,” according to a special study he’s published.
There is no single, aggregate economy. Las Vegas housing or Italy’s economy are apt to remain in the toilet while large U.S. corporations that populate the Standard & Poor’s 500 are doing quite well, he observes.
Corporate performance has been exceptional—I added the bold type above. Barron’s point is especially relevant to those firms (like Dorsey, Wright) that run relatively concentrated portfolios. It takes finding only a few big winners and letting them run to boost returns across the entire portfolio. The general background is always relevant, but it is in the specific and concrete implementation that money is made.
The big picture is important, but make sure you are not missing the trees for the forest.
Source: commons.wikimedia.org
