Throughout much of the market turmoil the news, discussion, uncertainty and doubt have all been aimed at one audience – traders. Traders are those who earn their income from moving money across financial markets or follow the financial markets. Traders make money when there is turbulence as change and volatility move stock prices generating ‘market momentum’ that is supposed to be a predictor of our economic future.
While the market has accurately predicted every major recession, it has also predicted many more recessions that failed to materialize. What happened the other times, when the ‘market’ said there would be a recession, but that recession never materialized? There are market corrections, oversold markets, runs on particular companies, extraordinary events like the European debt crisis, etc.
The markets are so volatile now and move based on perceptions that even CNBC has postulated that it has lost its reliability as a predictor of future economic conditions. J.J. Kinahan, the chief derivatives strategist at TD Ameritrade commented in a recent CNBC article“as long as you have that continuing story (Greek Debt), the whole premise with Dow Theory is thrown off.”
One thing to keep in mind is …
Traders are not business executives, nor investors, nor customers of the company.
They are traders and the difference matters, particularly when they get all the attention.
In these situations its easy to be blinded and driven deaf with the torrent of market movements that will tell you what is going to happen. Take all of that with a grain of sand and recognize that you, the business executive and investor are not the primary audience for news about the market.
Why is this important?
Because, traders can capitulate by cashing in their investments and sit on the sidelines until things clear up. Executives have to stick with it no matter how bad it gets. Capitulation for an executive is called retirement.
Executive plans need more than information intended for traders. They need more to find real opportunities.
Make plans based on customer needs, investor expectations and your business conditions because those are the realities that drive your earnings and cash flows. These are the signals that should shape your plans and investments as earnings and Cash flow eventually drive your market value once all the dust settles and the markets return to ‘normal’ whatever that is.
I am not saying ignore the market, but recognize that right now the market is not talking to you, it is yelling at itself.