Defeating Nonsense with Evidence
Courtesy of Joshua M Brown
Most of the market commentary you come across, including a lot of mine, is nonsense – even if it’s well meaning nonsense.
Of course we’re trying to interpret things as they happen – it’s human nature to want to understand what’s going on. The thing is, it’s probably best to use evidence as a starting point, rather than just repeating old wives tales, rules of thumb and opinions you hear in the media that sound better than they actually are.
At least, that’s what we try to do.
I want to make sure you don’t miss either of these two posts we’ve contributed to Bloomberg View today because they’re both great examples of how you can defeat nonsense with evidence, giving you a clearer picture of what to pay attention to and what nuances are more important than a blaring headline.
The first concerns “Small Business Confidence” surveys, which are useful for very little beyond dinner party conversation and political victory laps. My partner Barry Ritholtz looks at the predictive power of weak or strong confidence surveys and finds that there is nothing actionable there.
Small-Business Sentiment Is No Help to Investors (Bloomberg View)
Next – and this one is really great – my colleague Ben Carlson looks at the market’s current big concern around rising interest rates and inflation, concluding that you should be worried about the second thing, not the first thing. It turns out that stock market returns have been severely impacted by inflation readings above 3% versus below 3%. Rising rates, in the meantime, have not been a negative for stocks, with 17 instances recorded since 1962 in which the yield on the 10-year treasury rose by more than 100 basis points. During these 17 instances, stocks rose 14 out of 17 times, by an average of 22%, and the three drawdowns in the other periods were of less than 2% each.
Do not miss this:
Inflation Is a Bigger Danger to Stocks Than Rising Rates (Bloomberg View)
When clients have questions about these concerns, because they hear about them in the media or from friends, it gives us a lot of satisfaction to be able to address them in an evidence-based way. Communicating this stuff effectively makes for better client relationships and superior outcomes.
