Sunday, January 24, 2010

Are Chris Matthews and Sean Hannity Your Investment Advisors?

We live in a 24 hour news cycle world where the political, the social and the economic get blurred in a frothy soup of confusion.  I always have to remind myself that mixing political views with investing can be hazardous to your wealth. 

Contrary to many perceptions, the markets are neither Republican nor Democrat.

Folks who insist on interpreting the markets through the lens of their political views are likely to miss what is actually happening.  I don't have hard statistics on this, but I would be willing to bet that the majority of investors who missed the rally in 2009 were Republicans who simply could not bring themselves to believe that such a good event could transpire under the aegis of a foolhardy Democratic President like Obama.

Likewise, I think a lot of the rally of 2003-2007 was missed by Democrats who could not see a half full glass because they were so incensed that an idiot like Republican Bush was running things.

Think about your market views over the past decade.  Is this true for you?

Behavioral finance theory tells us that we are incined to select information that meets our previuosly established biases, and ignore or downplay information that contradicts those biases.

I count myself as a member of this flawed human race, so my solution is to try to take in as many divergent opinions as possible.  And especially to make an effort to seek out opinions that may contradict the views I currently hold.  Being open to divergent views is essential to good decision making. 

This skill is sorely lacking in Washington.  Maybe that's why, whether it's the GOP or the Dems in charge, they all seem to be such royal screwups.

How many of these closed-minded, pompous twits would last long working in the private sector?

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