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Sound Advice: March 9, 2022

Information?

There is no shortage of useless information about investing provided by the media, both broadcast and print.  On a nonstop basis, the public is bombarded by recommendations for the best stocks or funds to buy, an endless list of reasons why the markets are going up or down, and opportunities to take advantage of the latest approaches using artificial intelligence and other mysterious black box strategies for making fortunes.  And I suppose there are still some folks who would be willing to sell you the Brooklyn Bridge.

This valueless stream comes from popular outlets as well as supposedly esteemed professionals.  In a recent article, Jeff Sommer of The New York Times focused on the gyrations of the investment markets and the commentary from well-known Wall Streeters about the events in Ukraine.

Here’s an excerpt from a recent interview between Mr. Sommer and Eugene Fama, the University of Chicago economist who is widely known as the father of the efficient-markets theory.

Mr. Sommer asked whether Mr. Fama had been reading the analyses of Wall Street houses like Goldman Sachs or Morgan Stanley, or of those by independent market researchers.  He noted that they don’t predict how the war in Ukraine will end, but observed that they often recommend strategies for coping with tumultuous markets in what may be the start of a new Cold War and is certainly an era of high inflation, severed supply chains, and extreme volatility.

“No, he (Fama) said. “I don’t read any of it.  It’s investment porn,” he said.

I (Sommer) was taken aback. “That’s a little harsh, isn’t it?”

Fama: “Maybe.  But that stuff isn’t based on deep research. What do they really know?”

That sums it up.  Although fundamental research properly performed is of significant value when taking a long-term perspective, changes in investor psychology will always dominate in the short term.

Volatility is all about emotional responses, which periodically cloud the rational, long-term view. 

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

203-222-9370

www.soundasset.com

www.soundasset.blogspot.com

Any questions?  Please contact me at nrwayne@soundasset.com

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