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— ‘Data Point Market’ defined

— Who wins, who loses?

— The best way to play

The ‘Data Point Market’ defined

The key data point last week was the release of the personal consumption expenditures (PCE) on Thursday February 29. This is supposedly a key inflation indicator for the Fed in its fight against inflation. A number at or above this week’s consensus economists’ view would not be good news for those expecting the Fed to cut interest rates any time soon (another data point). According to some that data point came in a little hot (as expected). 

In anticipation of a bad number the S&P 500 fell until mid-week, then rallied on Thursday’s release of the number to a new all-time high. The Nasdaq composite mirrored this performance closing at a new all-time high on Friday. These data point obsessions are weekly. There is always something to concern us.

We are now being set up for other data points (better I should call them things to worry about) this week:“The Fed meeting and jobs data take center stage this week as Wall Street weighs interest rate outlook” (CNBC–3/1/2024)

What I’m getting at here is that there seems to be an inordinate focus in the media on short-term data and little or none on the long game, which historically has been navigated with much less worry and effort and significantly greater returns.

Winners and Losers

The winners are obvious — those who play the long game, investors like Warren Buffett, Ron Baron and George Soros. When they make an investment it is not dependent on low rates, low inflation or a robust bust economy. They are all looking for great companies with good prospects and great managements that will provide growth into the future. Ron Barron sums it up like this: “We look for high-conviction growth opportunities in which we can remain invested for the long-term.”  None of these gentlemen care about the data point noise above.

Other winners include traders and computer trading systems adept at trading the data point related swoons and bounces. Both types are pretty agile and equipped with much better resources than the average investor. Oh yes, the media which uses this as bait to get our attention is a big winner.

The losers are clear, people who pay close attention to these postings and base their investment decisions around them. Being in or out of the market or investing or not investing based on these concerns is a huge mistake. Also, it takes a huge investment in time and effort to keep track of the constant and changeable nature of these snippets of information. True investors set it and forget it. Sure, they monitor the performance of their investments but the macro environment is of no concern if they have the right company; i.e., recession or not, inflation or not, rate cuts or no rate cuts.

The Best Way to Play

Obviously, pick stocks and hold them for the long term, like the pros mentioned above. I do that. It is fun, engaging and time consuming. I’m still waiting to attain super star performance. In the final analysis I’ve found the S&P very hard to beat, especially lately, if you are not heavily invested in ‘big cap growth + Mag 7’. No, the best way to invest for the average investor would seem to be passive index investing. Warren Buffett started the partnership that eventually Berkshire Hathaway (BRK-A) in 1965. “Beginning in 1965, over a period of 58 years, the S&P 500, dividends included, delivered a compounded annual gain of 9.9%, while the Berkshire stock delivered 19.8%.” 9.9% compounded in a tax-efficient index fund ain’t that bad. All you had to do was close your eyes and ears and not let anybody talk you out of your stocks, i.e., worry you about the data points du jour. BTW, according to the article cited in the link above, Mr. Buffett has not beaten the S&P 500 in the last 20 years. My read is that this is because of the size of funds Berkshire manages and the Oracle of Omaha’s desire to invest in companies that he understands. Tech and tech valuation has never been his forte. Nonetheless, not beating the S&P but providing  positive returns over the long term has been welcomed by most Berkshire investors. Will Rodgers once quipped he ‘was more concerned about the return of his money than the return on his money’.

I guess as a practical matter my advice would be to be a long-game thinker/investor and second, think about data point fascination when committing funds or removing funds from the market. It would appear that the day or two before the actual critical next data point might be the most opportune time to add money to the market as investors ponder the worst. When removing cash the day of the data point might be the most opportune time to sell, when everybody breaths a sigh of relief that data point just reported did not signify the end of the world.

What’s your take?

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