Point Blindness

A recent academic study (PDF) on point blindness:

Millions of Americans pay attention to US stock market news. They get this news from many sources. Print outlets, 24-hour news networks, and thousands of websites provide scores of financial reports. Many of these reports focus on the rises and falls of major stock indices. As Robert Shiller puts it, “Nothing beats the stock market for sheer frequency of interesting news items.” One reason for increased attention to the stock market is a dramatic shift in responsibility for the post-work well being of American workers. Part of the shift is from employers to workers. Participation in defined benefit plans (e.g., pensions) has dropped significantly over the past two decades while participation in defined contribution plans (e.g., IRAs, 401(k)s and 403(b)s) has skyrocketed. A parallel shift from government to workers is also occurring due to growing doubts about the extent to which Americans can count on Social Security for retirement income. As the 2007 Annual Report of the Social Security Administration states: “The financial condition of the Social Security and Medicare programs remains problematic; we believe their currently projected long run growth rates are not sustainable under current financing arrangements. Social Security’s current annual surpluses of tax income over expenditures will soon begin to decline and then turn into rapidly growing deficits as the baby boom generation retires…. The longer we wait to address these challenges, the more limited will be the options available, the greater will be the required adjustments, and the more severe the potential detrimental economic impact on our nation.” Where recent generations looked to employers or government for post-work guarantees of income, younger and middle-age workers have a different future ahead. Their future financial security is more likely to depend on their own and others’ investment decisions. As a result, what Americans believe about the stock market is important – not just to their own financial futures but also to governments and others whose assistance will be sought if scores of people make bad investment choices simultaneously. For these and other reasons, the conclusions Americans draw from stock market news have important implications.

A complicated way of saying to turn off Cramer.

You might like my 2017 epic release: Trend Following: How to Make a Fortune in Bull, Bear and Black Swan Markets (Fifth Edition). Revised and extended with twice as much content.