Emotions and Facts – US Economy and Markets

Bugra Bakan

“We are in the business of making mistakes. The only difference between the winners and the losers is that the winners make small mistakes, while the losers make big mistakes.” Ned Davis, Market Analyst

It feels like the markets are coming close to a critical juncture, which makes the opening quote from my favorite market researcher Ned Davis, all the more meaningful. During times of change, it is easier to make mistakes. The key question becomes how big is the mistake and how long has one resisted correcting it? What I can add to the Ned Davis’ quote, is that the biggest difference between the winners and losers is that the winners correct themselves quicker than the losers, and learn from their mistakes. As the US stock market might be approaching the end of the cyclical (short term) bull cycle that started in March 2009, the winners will be those whose tactical moves will reflect the tidal changes as opposed to fighting them.

First quarter 2013 real Gross Domestic Product (GDP) annualized growth rate came in at 2.5%, below the expected 3%-3.5% range. To give you a perspective, the post WW II average is 3.5% and the current reading is significantly lower than the historical average; 28% less.