Many of us enjoy watching financial markets and reading the financial press. In the author’s view some current knowledge of markets and the economy is a necessity as many of us manage our savings and investments through self-directed plans such as 401k’s and IRA’s. True, it is wise to seek the help of a professional investment adviser, but an educated consumer should be their best customer.
In forming our investment views and opinions we are all data dependent. We generally get our news from the financial press who interpret data and provides analysis.
A challenge in making wise and informed investment decisions is filtering through opinion and spin. With regards to the financial press, it is natural to report data and provide analysis that fits nicely with ones broader views. As an author I do the same. As an investor I want insights and analysis that help me make informed decisions.
When writing and investing, I start with a fundamental view of the economy based upon free-market principles and a strong belief in capitalism. It’s a starting point for economic and investment analysis based upon the belief that one economic system is better than another.
I write frequently about the impact the Federal Reserve and other central bank policy is having on markets. I am often critical of their policies. I am also critical of the many government policies enacted over the last several years that interfere with the functioning of free markets.
With a strong belief that the only way to long-term and lasting prosperity is capitalism and free markets, it is difficult to put a positive spin on current economic data and easy to find flaws in much of the mainstream press’ analysis.
It is also difficult to believe that financial markets are not long due for a major correction.
However, the purpose of this article is not to try to convince you that you too should be a disciple of free market capitalism, though I think it wise. The purpose of this article is to convince you of the importance of having an overriding view of economic principles in order to be able to sort through and interpret economic data and analysis as reported in the financial press.
Whatever your view of economic principles, your long-term investment strategy should be structured toward that view.
If you believe in centralized decision-making and increasing government financial and economic oversight, you should be comfortable with the current level of asset prices and structure your portfolio for a sustained rally in prices.
On the other hand, if you believe that only free markets can allocate capital efficiently, now might be the time to defensively position your portfolio.
In conclusion, start your investment decision making with an educated opinion on current economic and government policy. Strive to interpret economic and financial data and analysis with your fundamental economic view overlaid. Approach your investment adviser with an educated opinion of the current and future economic environment.