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Keep thinking long term for 2009

Marketplace Staff Jan 12, 2009


Scott Jagow: Our friend Allan Sloan from Fortune Magazine wants to start the New Year with a basic stock market reminder: You still better be thinking long-term. OK, Allan, that’s one of the cardinal rules. Would you care to elaborate?

Allan Sloan: What I’m saying is that paying serious attention to the daily or hourly fluctuations in the stock market is not going to really do you any good. The only people it’ll do good are your stomach doctors nd the people who sell ulcer medicine.

Jagow: Haha.

Sloan: The stock market is rational in the long term. In the short term, it isn’t necessarily rational, especially now.

Jagow: So on a day to day basis, what are we supposed to take from the stock market and why it’s going down? What do you think is driving the market on a day to day basis?

Sloan: You have mutual funds and hedge funds that need to raise money, because investors are taking their money out. And they take whatever they have around that they can sell and they sell it to get enough money to pay to the investors leaving. And that has nothing to do with the economy, it has nothing to do with interest rates. It’s the internal workings of Wall Street. But we impose on this this idea that every move in the stock market has a rational cause. You know, a lot of it in the short term is not rational, and we treat it as if it is.

Jagow: All right, well let’s look a little bit more long-term at what has just happened to the stock market. What are you taking from the stock market’s behavior of late?

Sloan: What I’m taking is the markets are very what they call “gappy” — they have a tendency to move up and down a lot. Things are probably revolving around some central statistical point, but I don’t know where it is, because if I knew where it was, I could make a fortune when it went below it or above it. But I just don’t know. There’s a lot of fear, there’s a lot of people desperate to get cash, to get out of problems. And I think that there are a lot of people going into their 401K plans trying to personally stay afloat.

Jagow: Hmmm.

Sloan: There are a lot of strange dynamics that go on in markets that have nothing to do with economics. And I think there’s more of them now than there were just because there’s so much fear and so many very fine long-term investors — many of whom, unfortunately for me, have my money — have had a terrible, terrible terrible 2008. And, you know, they’re trying to figure out what they’re doing. And I don’t blame them, because I’m trying to figure out what I’m doing.

Jagow: All right, Allan Sloan from Fortune Magazine. Thanks.

Sloan:You’re welcome, Scott.

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