Vancouver Investment Advisor Ritch Wigham

Numbers aren’t always what you think!

The other day I got a call from a friend who is also a broker of long standing (20+ years), he asked me to talk to a young fellow who he felt would be good, and should be encouraged to be a broker. Being that we have been friends for many, many, years I relented and said sure “have him give me a call”. It was an education for me.

I don’t know what it was for this guy in his twenties (with a good level of education by the way) but I know that he thinks differently today than he did on Tuesday morning.My re-education revolves around the revelation that the thirst to parse the market into small levels of minutia is prevalent more and more with the aging of the investing population. It took me probably 10 “who cares” to this fellows barrage of questions about every silly number that comes out every day from varying government departments. Now don’t get me wrong I am a bit of a junkie myself for the vast array of economic indicators that we are inundated with, but I learned a long time ago that you must take most numbers in context and not necessarily what you think they mean on face value. This is a theme not dissimilar to my little continuing rant about the financial news networks need to shock and awe whenever they get the chance (That’s both to the bull and the bear reactions). Buy/sell/buy/sell/buy/sell, depending on what minute you are turning on and tuning in.

Apparently they have managed to convince everybody that if you don’t know what” that number means” you are missing the most important thing in the market. After talking to my little friend I now realize just how unfortunate this is.

My background is commodities and therefore it is by nature numbers and what they mean. Reserve size for a copper deposit, carryover ending stocks for grains, what an API number means to the potential for a new oil discovery. I can go on, but I think I am making my point. Not all numbers mean what they seem. Many numbers have more important numbers hidden in them, (consumer spending for example, where spending on clothes or for food or gas has an impact, and quite different meanings) many more numbers need to be looked at as to where they fit currently in the scheme of the current market environment.

My little friend got himself hung up on “consumer credit” in the U.S. WHO CARES!!

He didn’t like that. “What’s wrong with you” he says. “This number is saying there is still no consumer spending” he says,” you must care, because the U.S. economy can’t recover if the consumer isn’t spending their money” he says. “We should be selling the market” he says “WHO CARES” I says, he didn’t like it even more. So I asked him, “What sector of the economy do you think will lead the recovery and continue to strengthen the overall market place?? What will lead the stock market higher” I says?? He thought for a moment (to his credit) and says that he feels that commodities and then also the tech sector and exporters such as Caterpillar would be the best places to be. O.K. I say,” then WHO CARES about the American consumers credit. All of these areas are predicated on either continued consumption from the BRIC countries or spending by business to upgrade their competitiveness (tech spending). So what if the lower numbers for expanding credit are because the American consumer is saving more money and paying down their consumer(read credit card) debt?? I says. “and what if that means there is actually expanding capacity for Americans to take on more debt???”

He thought about that for quite a while. “So you’re saying that I am putting to much emphasis on that number, consumer credit” he says quietly. “No I says, you are however looking at it in the way you were told what it means by either your professor at school or the talking head that you just watched deliver the number on T.V”. “I’m confused” he says, “The numbers don’t always mean what you think they do” I says. “Talk to you soon, I think I got it” he says.

Could we please always remember this before we jump and make the wrong move. Short term numbers can, and do, have a very real effect on longer term investments but to react to all of them is nothing short of folly!

Yours,

Ritch