The Stock Market A P

The Stock Market: A Party You Might Not Want to Attend

Do you enjoy browsing in the financial pages? Is your fire lit by phrases like “non-farm employment numbers”? Do you follow Federal Reserve Bank Chairman Alan Greenspan’s every pronouncement? Or do you move on to the sports page? (This is not a bad idea actually).

The problem with Wall Street is that it is run by a very nervous group of people. The least bit of news will have them rushing to sell or perhaps to buy. (It depends on what everybody else is doing). A job numbers report may have investors dumping stocks in the morning; by afternoon they may buy again when the Fed hints it may not raise interest rates.

The news cycle was much slower in our previous history. To cite only one example: Andrew Jackson’s victory over the British at New Orleans was somewhat dampened when he heard the War of 1812 had ended the year before. The General was quoted as saying: “Great Jumping Jehoshaphat! Why didn’t somebody tell me?”

Nowadays we hear way too much in real time, which the investment community cannot handle. For example, Fed Chairman Greenspan and his little playmates are watched around the clock in case they slip up and actually say something in English.

The Open Market Committee proceedings are not well understood. It is not all that complicated really. Greenspan and his friends will meet for breakfast and do a little shopping at an open market (hence the name); they will have a Danish and coffee. Sometimes they will have their hair done before going to the office.

They will then announce the latest interest rate, which is unchanged, or is higher or is lower. Any of these three results will set off a frenzy of buying or selling depending on investors’ interpretations.

Some investors pretend to be real people with minds of their own, but the strain causes them to throw up in their wastebaskets. They soon catch up with the herd, which is butting heads on the trading floor to be the first to sell or buy depending on what the consensus is that the news calls for.

Are you really interested in all this? Should you be in the market or not? It depends. What is your risk profile? Let’s say you lost 30% of your life savings overnight in the market, would you (a) Remain calm and stick with your buy and hold strategy or (b) Would you sell out and have nightmares for months afterwards?

If you’re in the “b” category, you may want to skip investing and go directly to saving. Or spend your spare cash in the hope that your money will never run out. This strategy may keep you working until you drop which may not be your plan.

So what should you do with your discretionary funds (mad money)? Love it, keep it, but be cautious about sending it to market. With the market your stake can change every minute. You can make yourself a nervous wreck. All this is unnecessary. You don’t have to worry about diversifying your holdings either, which only means losing money on both stocks and bonds.

You also don’t have to concern yourself with asset allocation. Do you have to be told where to allocate your money if it’s already tied in up your home and liquid assets (beer)?

When the latest news story stirs up the market, you can skip it unless it’s one with some human interest attached. Let’s say Juan Valdez (The Mr. Coffee of Columbia) is interviewed by CNN when it is rumored that coffee prices are going lower.

Juan is caught on camera without his burro saying the coffee market is going to hell in a hand basket. This upsets commodity brokers worldwide who huddle to decide if they should dump coffee or if should they buy in case Juan is all wet? Decisions, decisions. You might follow this story just to see if Juan has got a new outfit lately or if his burro is the same cute one or a new one who is considered more photogenic.

But if you enjoy following the financial news and would like an expensive, time-consuming, stressful hobby, the market could be just the thing for you.