I must admit that I have been guilty of violating this principle that is taught by Barry Ritholtz. I recently read his great article that analyzed the impact that politics and economics has on investment community. It was enlightening to me and I encourage you to click through to the article and read it.
Barry points out that most economic issues are either estimates or such long-term trends that they have very little impact on specific stocks. He quotes Warren Buffet: “If you knew what was going to happen in the economy, you still wouldn’t necessarily know what was going to happen in the stock market.”
Barry points out that politics has even less of an impact on the market. He points out that the markets wobbled a bit for various political panics. He also points out that within a short time the previous trends continued as if the politicians didn’t matter.
Interesting that if the market spiked or dropped during those politically sensitive times the only ones that probably made or lost money were the ones that worried about the event. They also probably just took money away from each other and not from the steady investor that sat back and didn’t panic.
Personally, I know that I have been guilty of worrying about political issues. I thought for sure the market would react badly to the fiscal cliff at the beginning of 2013. I pulled all of my capital out of the market except for my free shares (read my book, The Confident Investor, to learn how to get free shares of stock). Nothing essential happened to any of my Watch List stocks during the fiscal cliff. Granted, I didn’t lose money but I am sure that I lost the opportunity to make more money. Bad mistake on my part that I won’t be repeating in the future.
I don’t wish to regurgitate all of the great points that Barry made – go over and read his article. He makes excellent points on ignoring these two issues.