Investing based on headlines is financially futile

By DAVID MOON, Moon Capital Management, LLC
October 13, 2013

In the first nine months of 2013, the S&P 500 and Dow Jones Industrial Average each set record highs. Even after last week’s drop, the indices currently trade 13 and 10 percent, respectively, above their December 2012 levels.

So much for the fear of government shut downs, debt ceiling crises, Syria and Iran.

Consumer confidence, however, is lower than both a month ago and a year ago. Long-term Treasury rates have increased 22 percent since January.

Another debt-limit crisis is looming.

Government partisanship feels like it’s at an all-time high, and almost everyone agrees that the real problem is the other side.

Perhaps you have heard or read something about the implementation of the Affordable Care Act. It’s been in the news.

Given the vitriol and dire predictions about the disastrous effect of health care reform, it might be more than a bit surprising to some that in the nine months immediately preceding the implementation of Obamacare, the average healthcare mutual fund would have increased 38 percent.

But it happened.

The rate on a 30-year fixed mortgage has increased from 3.41 percent in January to 4.49 percent in September. Yet both new home starts and sales have increased.

The stock prices of housing companies have declined in the past four months but are generally up 200 to 400 percent over the past two years.

If economic growth in the US is muted, what about investments in some of the faster growing and emerging international markets?

The average diversified emerging markets mutual fund declined two percent in the first nine months of the year, trailing the return of the S&P 500 by more than 20 percentage points. Latin American mutual funds declined 10 percent.

In times of fear, investors often run to safe havens. How have the traditional safe havens fared this year?

The average short-term municipal bond fund declined about a half percent in the first nine months of the year. High-yield municipal bond funds declined 6 percent.

The average general long-term bond fund declined 3.74 percent. Mutual funds that invest in supposedly safe, inflation-protected bonds have declined 6.37 percent in 2013.

The average long-term government bond fund has declined more than ten percent. But it’s not just the bond market that has surprised some investors with poor performance this year.

Gold has declined more than 20 percent so far in 2013; the average equity precious metals fund is down a whopping 42 percent.

Compared to a year ago, however, stocks are up, unemployment is down from 8.1 percent to 7.3 percent and personal income increased 5.6 percent.

If this year hasn't reminded us of anything else, it serves as a salient lesson of why "headline investing" may be emotionally satisfying, but is financially futile. If the key to investment success was found in the headlines of the news, the richest people in the world would be journalists.


David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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