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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.

Economic issues

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.”

Political issues

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.

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Company name Advance Auto Parts, Inc.
Stock ticker AAP
Live stock price [stckqut]AAP[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Poor
EPS growth Good
P/E growth Poor
EBIT growth Fair

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $74.48
Target stock price (averages with growth) $89.57
Target stock price (averages with no growth) $75.82
Target stock price (manual assumptions) $74.81

The following company description is from Google Finance: http://www.google.com/finance?q=aap

Advance Auto Parts, Inc. (Advance) is a specialty retailer of automotive aftermarket parts, accessories, batteries and maintenance items primarily operating within the United States. The Company operates in two segments: Advance Auto Parts (AAP), and Autopart International (AI). Its stores carry an extensive product line for cars, vans, sport utility vehicles and light trucks. The Company serves both do-it-yourself (DIY), and do-it-for-me (Commercial), customers. Its Commercial customers consist primarily of delivery customers for whom the Company delivers product from its store locations to it Commercial customers’ places of business, including independent garages, service stations and auto dealers. In December 2012, the Company acquired B.W.P. Distributors, Inc.

 

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.