Mood shifts can drive you crazy

Posted: Thursday, June 22, 2000

NEW YORK (AP) -- Watch out for economic and investment mood shifts and treat them with the disrespect they deserve.

With the economy in transition and its outcome uncertain, the stock market volatile and apt to go any which way, and the views of political candidates wavering with the wind, mood shifts can be terribly misleading.

An example from the stock market:

A few months ago an analyst's downgrading of a stock might be ignored, while an upgrading might lead to a burst of buying. Today, the downgrading might drop a price $10 but an upgrading might raise it by only $2.

The mood, that is, has chilled like a winter's day. Optimism has been replaced by squeamishness, while the underlying factors have remained the same. The environment hasn't changed that much; the view of it has.

Massive mood shifts, more numerous, volatile and capricious than the marketplace itself, have become almost daily events, shaking investors to the extremes of optimism or pessimism, then passing on as if nothing had occurred. That is, nothing more than massive changes in portfolios.

It isn't always easy to anticipate such mood shifts, which can shake the economic foundations on the basis of a simple government statistic, and it is equally difficult to ignore them.

You can take the long run view of things and calm your nerves by trying to believe that one day's negatives become tomorrow's positives, but to do so is risky. Those mood shifts may have little basis in reality, but they have the same real effect on the prices of your stocks.

Some critics have sought to explain the phenomenon with the explanation that we have too many ''experts'' analyzing too many economic specks. And, by the way, being paid big bucks to do so.

The result is a range of views that sometimes coalesce in one day to a hugely pessimistic view of the economy, one that is viewed as heading toward a crash and then, two days later, gliding toward a soft landing.

These opinions cannot be stopped, because viewpoints are not offered solely to guide you in your thinking but, more likely, to impress you with an economist's wisdom and encourage you to buy or not to buy his company's product. In short, they are part of the modern merchandizing process.

A service economy especially lends itself to peddling points of view, and the process is intensified when political goals are involved. The selling of fear or woe is a basic ingredient, like flour in bread.

Consider two viewpoints on one subject, the housing of America's families.

Positive: The housing boom -- the building, buying and improving the housing stock and raising the level of home ownership to the highest in the postwar era -- is a testament to American ingenuity.

While prices have risen, benefitting existing owners, affordability also has risen because of more and better-paying jobs. Ownership has risen especially sharply among minorities, some of them brand new immigrants.

Negative: Rents have risen, especially among the poor, in some instances consuming most of their take-home pay. And while minority ownership has risen, the gap between whites and minorities remains.

Much depends on the points of view, and those points change more swiftly than ever before. Statistical studies, relied on more than ever by economists and governments, lend themselves to varied interpretations.

That accounts for some of the phenomenon. The selling of opinions by corporations, brokers, academics and think tanks accounts for more. And the willingness of people to absorb other people's ideas for still more.

Since it isn't likely to go away, you might just have to bear with, try to detect which is based in reality, which floats free of any anchors and which is likely to clause a mood shift, and take the long-term view.

The long-term view is that it all cancels out in time.

End Adv PMs editions June 22

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