Even If You Knew, Would it Matter?

I am often asked what I would do if the Jobs numbers come in weak, or if the Fed decides to reduce their stimulus, or what if that company doesn't hit their earnings targets? People wonder if I would sell my stocks. You would be amazed at how difficult it is to explain to someone that it really doesn't matter. Doesn't matter?! How can it not matter if the Fed reduces its stimulus activity?

This is what I try to explain: It's not the number itself that is important, all that matters is how the market handles/interprets the number. The Jobs number could be weak and the market could rally because it means the Fed would continue to ease. The Fed could reduce (taper) its stimulus and the market could sell off. The Fed could reduce (taper) its stimulus and the market could rally.

It's not the news that is important (the "why" rarely matters), it is the reaction by the market to the news that matters (the "what" is most important). So if they told you at the open this morning that the Fed was going to reduce their bond purchases by $10B per month at 11:00am, what would you do with your holdings? If you are like most reasonable people you would decide to sell at least some of your stocks to protect yourself...The Fed is going to take its foot off the gas a bit, so the market likely will too. It should correct and I will protect my profits from a strong year. That's what You, Me, and most anyone else would do. And its smart, we've had nice gains this year and why take a chance giving back those hard gained profits when the market will sell off into the disappointing stimulus announcement?

...and we would have been 100% correct...

At 11:00am the Fed announced the taper, the SP500 was at 1,780. At 11:01am the SP500 was at 1,768. That's a 12 point drop in a matter of seconds! It looks like a lot of people wish they would have known the outcome ahead of time, like us. They could have gotten out of the way more quickly too.

We would have been spot on, for 1 whole minute...

At 11:05am the SP500 was at 1,794 and never looked back, closing at a new all-time closing high.

Wait! What?! What just happened to logic and our plan?! Oops, I guess the market doesn't give a shit about your plans. Go complain to the guy who bought your shares this morning and is now riding off into the sunset.

You see, its not the number or the news that matters. All that matters is what the market says matters. Far to often people are caught up in the "why" and the "what" takes them to the cleaners. I know many people think they can anticipate the news and predict the future. But really, no one can.

You still want to guess that Jobs number or the next Taper amount? Let me ask you this, even if you were right, would it matter?