When it comes to the Financial Markets, its all about perception

I like to go to the movies occasionally.  Recently, I went to a movie with my wife and we both came away with the perception that the movie was very well-done.  In fact, I would go so far as to say it was phenomenal, an excellent plot, intense moments intermixed with visually interesting computer graphics, it ended with a positive conclusion, and we came away feeling that our time was very well spent.  As we were leaving, I noticed a gentleman outside that I had seen in the theatre.  I asked him what his impression of the movie was.  He shrugged and said, “Oh, it was okay.”

I was impressed with how far apart our perceptions of the same film had been.  How could we have been in the same theatre, watching the same presentation, with the same environmental conditions (light, temperature, noise, etc.) and yet had such vastly different perceptions of what we had experienced?

With some things in life, perceptions are generally the same.  Whether you agree with him or not, Rush Limbaugh is generally obnoxious.  A great dinner is generally enjoyed by all.  A delicious dessert is generally appreciated by all. But with many other things the satisfaction derived or the benefit gained is generally in the eye of the beholder.

For example, recently the unemployment numbers came out here in the U.S. for the month of November.  “Only” 11,000 jobs were lost, versus the expected 125,000.  Some perceived this as being helpful to the stock market and the economy as more retained workers should translate to more productivity, more consumption, etc.  On the other hand, others looked at the healthier numbers as indicating that the FED (Federal Reserve) would likely raise interest rates sooner if they perceived that the economy is in recovery mode.  This would reduce the consumers’ desire to spend, lower peoples’ inclinations to borrow, and slow the economy down.

Talk about expected results being totally different!!

Why does perception play such an important part in our lives?  If we think something is going to make us feel better say, by building up our self-esteem, by satisfying our senses, or by improving our health, we are generally going to participate in it.  If, in fact, the product or service does not meet our perceived expectation we will not likely participate in it again.  This is why it has become more difficult, especially with the older, more conservative generation, to get people to invest in the stock market.  Back in the late ‘90’s, when the stock market had experienced a tremendous bull run our previous perceptions that the stock market was an effective place to save for retirement was reinforced.  Then the market plummeted with tech bubble bursting in 2000 and the attack on our country in 2001 (9/11).  We then perceived that the stock market was a bad thing as it had burned us.  Gradually, through 2007, we regained our confidence in it.  Surely, we couldn’t experience a repeat of the tech crises!  Our perception was that it wouldn’t be repeated.  Then, the subprime mortgage crises and our over-leveraging of our personal financial situations hit and the markets plummeted again.   But this time, other than having our money in cash, there wasn’t any place where we didn’t get hurt, not even in bonds or gold.

Now, after two collapses in the same decade, the general perception seems to be that participation in the stock market seems to bring bad results.  My objective as a financial advisor is to try to change that perception.  If I cannot, at least over time, my business and the industry that I work in is in jeopardy.

My guess is that over time, the general population’s perception of the markets will swing positive again.

The most common question I get from my investors is for a prediction of the future movement of the stock market.  Let me tell you something --- I am right 50% of the time!  In fact, I have been wrong so much of the time that I have given up trying.  What one person perceives as a positive, another will turn to a negative.  It can be argued that there are, at any time, an equal amount of bulls and bears in the market.

Perceptions of political maneuverings, consumer confidence, interest rates, mortgage foreclosures: these will all drive the movements of world markets. 

Here’s hoping that we will allow all people the freedom to express their opinions, so that we can evaluate them and then form our own perceptions.  The challenge that you and I have is to determine which way people will perceive things.  If we can predict this, we can predict the movements of world markets. 

Reality has little to do with it.

Opinions expressed are those of the author and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

Past performance is no guarantee of a future result.

Jim Rigtrup is the owner of and a wealth manager with Keystone Wealth Management Group, LLC.  Sandy, UT.  He can be reached at (801) 572-1077 or at jim.rigtrup@lpl.com

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