Accepting the Unknown
On Thursday March 17, 2011, 10:00 am,
During the course of the week, the biggest surprise to me has not been the actions or gyrations of the market on a day-to-day basis. They have been a little puzzling, as the global situation is a little rocky, to say the least.
However, I would have expected deeper declines than we have seen. Major damage to the world's third-largest economy and armed conflict in the world's largest crude-oil producing region would have produced a little more fear -- if black boxes could feel fear; that's my best guess at the dampened reaction. What has surprised me the most, though, has been traders' and investors' willingness to take such a clear, black-and-white stance on what will happen now.
It seems that many guys and gals with accounting and finance degrees have suddenly become nuclear experts. In the past week, people who could not tell the difference between a picture of a coal-fired plant and a nuke plant have told me in great degree and detail what's going to happen to the nuclear industry and with the nuclear stocks. At this time, even though we do not know what's happening at the Japanese nuclear plants or how the situation is going to end, people are projecting the future of nuclear energy in Japan and around the globe. To someone who has the margin of safety concept ingrained in his core, I am dumbfounded by the fact that people will back these relatively uninformed opinions by buying or shorting stocks in nuclear and uranium stocks.
In the same manner, a lot of people who have spent their entire lives trading on statistical and fundamental data are immediate experts on things like electronics and supply chains, auto demand and manufacturing capability, and global macroeconomics. They will tell you exactly how many days it will take for Japanese plants to be up and running, and churning out Toyotas and iPod components; again, they are willing to risk their own capital on their idea. Since neither the Japanese government nor the companies involved are sure when they will be producing again and how much product they can ship, that's a fairly bold prediction. It's even bolder to back up your uninformed certainty with cash.
There are times when "I do not know" is a valid and correct statement. The aftermath of 9/11 was one such moment. I think now is another moment when it's okay -- and probably financially healthy -- to admit that the situation is still very fluid, and we just do not know the outcome and economic consequences from the disaster in Japan and the unrest in the Middle East. Rather than develop complex opinions about the economics of the global situation to justify trading or investing positions, it is best to stick with what you know and the expertise you have developed while navigating the markets.