Fisher Investments Editorial Staff
Media Hype/Myths, US Economy

A Resolution Good Enough to Keep

By, 01/03/2011

 

Story Highlights:

  • Despite attention-grabbing negative headlines, the preponderance of less widely reported positive stories and data points amounted to an above-average year for stocks in 2010.
  • 2010's trials and tribulations are part and parcel of what makes investing so difficult.
  • Fact finding before forming an interpretation is a key to successfully navigating markets.

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With the champagne now drunk, it's appropriate to take a brief look back at 2010. It's a media tradition to run a cornucopia of retrospective pieces—from nominating debatable people of the year to producing slideshows of the year in images. We'd like to add our own two cents to the "stories of the year."

No depiction of 2010 is truly complete without the PIIGS, which so effectively garnered headlines beginning last spring. European sovereign debt issues led to widespread fears of a fresh debt crisis—and even the possible dissolution of the European Monetary Union and the death of the euro—providing the storyline for the spring's correction. First Greece, then contagion fears, and the year rounded out with Ireland.

In the summer, headlines surrounding a potential US double-dip recession were in vogue. For weeks, the slightest slowdown in growth rates was widely thought to indicate recession's return. From folks assigning curiously calculated double-dip probabilities to those who were certain of a second down leg, the subject was fodder for news.

Political fears were another major 2010 story, culminating in this fall's midterm elections. From health care legislation to financial reform, lame ducks to gridlock, austerity to deficit spending, and tax hikes to tax cuts, almost any issue generated concern—with plenty of uncertainty and both sides of the aisle claiming their plan would boost economic growth while their opponents' would retard it.

On top of these broader stories were more short-lived stories like May's "Flash Crash" and discussions of so-called currency wars.

Quite a tumultuous year! Without knowing the end result, a visitor from another planet might look at these many (sometimes legitimate) fears and assume these factors contributed to a bad year for stocks and the global economy. Which gives us our story of the year: Despite all the aforementioned headlines, stocks turned in double-digit positive returns (both in the US and globally), and the global economy grew. How so? As frequently happens in bull markets, negative headlines glossed over many other news stories that were positive—a global recovery led by Emerging Markets, highly profitable US and foreign corporations, falling trade barriers, increased business spending, and many more. Added together, these less frequently reported positives outweighed the negatives by yearend.

Typically, history is written by the victor. And years from now, 2010 will likely be thought of as simply a good year of above-average stock market returns and continued global economic recovery. But those who lived through it will recall big volatility and frustrations aplenty along the way. Hindsight sometimes diminishes the arduousness involved in making the right calls (e.g., "Of course! We knew it would turn out this way all along!"), but when faced with making real-time investment decisions, many investors succumb to emotion and bias.

2010's trials and tribulations are part and parcel of what makes investing so difficult—and last year's aren't unique. The challenge investors routinely face is finding reliable information and then interpreting it and the likely impact (or lack thereof) by weighing positives against negatives. This balancing act of frequently counterintuitive and occasionally conflicting information (if done correctly) can help grant the light to see markets more clearly. 

At a new year's dawn, more data and headlines approach—some likely positive and some probably negative. With that in mind, we propose a resolution for investors: Take an even-handed approach to dissecting financial news and information—let found facts guide interpretation, as opposed to interpretation guiding fact finding.

In closing, we'd like to wish all of our readers a happy and prosperous New Year.

 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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