Avoid ‘Pre-news’ Whipsaw – Be Patient and Apolitical

Tuesday, March 16, 2010

What do the health care plan, Chinese currency exchange and Wall Street regulation have in common? They are all popular “pre-news” stories. Negotiating stances, trial balloons and political posturing are reported as news, but they are preliminary pronouncements that precede the real news – i.e., the final conclusion.

Congress’ health care plan activity is a good example. The pre-news reports have followed the politicians’ meandering paths, whipsawing us about. Just when we thought we gained an understanding, key components were reordered, “unalterable” conditions were changed, revenue sources were added/dropped, etc.  So, what do we do?

As investors, there are two effective routes for handling pre-news.

The first route: ignore the pre-news. This “wake me when it’s over” approach frees up time and mental energy, but can be hard to do. Others can mistake our wise strategy for ignorance. And, after all, we are curious….

So, likely we need the second route: be patient and apolitical.

Patient, because, where negotiations are involved, outcomes usually take longer than expected. The US-China discussion (about allowing the Chinese yuan to rise versus the US dollar) is a good example. The latest salvo was made into the lead story in The Wall Street Journal (“China Talks Tough to U.S.”; March 15, page A-1). The report? China’s premier says “no.” Front-and-center placement notwithstanding, this public rejection is a typical negotiating tactic, so provides little information.

Apolitical, because taking sides harms our ability to make sound investment decisions. The Senate Banking Committee’s financial industry regulation activities are a good example. We might have strong feelings about the regulators, the regulations or the “regulatees.” However, what matters is the actions that take place – not whether we believe those actions to be good or bad. Dispassionately evaluating facts will earn us a better return than passing critical judgment.

So, when it comes to pre-news reports, keep them in their rightful place: on the periphery. Be patient during the process, then apolitical when action is taken. You will be well prepared, with the facts in hand, to shape your investment strategy, as appropriate.

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John Tobey on Seeking Alpha

Seeking Alpha Certified

March 2010