Investors are often confused by the myriad of data points that circulate throughout the financial markets and this can make it very difficult to discern which information should be given more weight.
Is this a problem for you as well? It rarely happens to me these days, but it can be insidious at times and only becomes visible when the damage is done. We can truly be our worst enemy when it comes to interpreting news, data and the media in general. Fear not, this is why it's so important to have anchors. What are your anchors? Do you have any when the sea of data swirls outside your door?
If you don't, you are not alone, but be grateful, because this is ultimately what makes a market. Think about it for a minute...when was the last time you ever heard two people recall a story in the exact same manner? It certainly doesn't happen at one of my family BBQ's or around the water cooler post an office event the night before.
For instance, how important is the FED Rate Cut with respect to the price and future performance on AAPL stock? If the FOMC cuts the overnight interest rate by 50 bips (basis points) or not at all (sound the alarm) will Tim Cook need to stop marketing the apple watch? However, exaggerated the point I am attempting to make is -- do you see what I mean?
Let's look at some charts before someone puts me in a straight jacket. Note how in the chart below which is an AAPL weekly, Price goes from the bottom left to the top right of the image. This is how we all want our investments to look and feel -- textbook.
Next is what most investors were focused on below given the FOMC meetings this week. How on earth is this chart going to help you invest in a technology company? Interest rates will impact the overall economy over time, which in turn may also affect stocks, bonds, commodities, etc. BUT, the job of an investor isn't to predict where the economy is going to be, it is to locate assets that are undervalued relative to the present moment -- it's that simple or at least it can be if we remove all the distractions from our approach. Follow?
That said, wouldn't it make a lot more sense to simply focus on the AAPL chart. Can you see clearly that the stock sold off from 230ish to 140ish? Do you see where buyers showed up by reaching into their wallets and validated that they believed it was a good value? Regardless of who bought it at those levels and irrespective of "the why" they continued to keep buying at even higher prices. Can you see that as well?
Furthermore, similar to most events in life, the more recent something occurs the greater relevance it typically carries. If we zoom in on AAPL from late April we can see that there was a considerable sell-off. But again the buyers said, "I'll own it here." And as Price rose the buyers continued to chase the stock despite the fact that everyone already owns an iPhone (note attempt at humor).
Does any of this make sense? Was it helpful? Should I seek therapy?
As always, there is so much more to see on charts like these and a smorgasbord of information we can observe to make more sound decisions as investors.
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