With Michael K. Farr, CEO and Founder of Farr, Miller & Washington
It’s been an unusual year in the market: The S&P had been down 12% at one point; Brexit created a case of global economic jitters—then the market rallied and hasn’t stopped since. So what’s going on and where do we go from here?
Michael Farr, a CNBC contributor and President of the DC investment firm, Farr, Miller & Washington, and a frequent guest on On The Money, offers a thoughtful and interesting analysis to help us make sense of recent events shaking up the stock market as well as our collective sense of economic security.
Michael believes that rapidly occurring global and national news-making events cause what he refers to as distraction amnesia, where we barely are able to process one crisis before another headline comes along at whiplash speed grabbing our attention and switching our focus. So we’re skipping around from one panic mode to the next: it’s Brexit, then it’s rising or falling oil prices, then terrorism or some other factor beyond our control. Before you know it, we’re investing from an emotional position which, Michael says, is the fall of the long-term investor.
Brexit created an atmosphere of fear driving some investors to panic and sell, which turned out to be a big mistake when the market quickly rebounded from a slight downturn. Now our attention is focused on the presidential election campaign and, once again, emotion is steering the ship, but this time, it’s not fear so much as anger that’s at the emotional core. Michael points out the extreme polarizing sense within this current election debate—no matter if you’re a Trump or a Clinton supporter—emanating mostly from the “economic disparity we’re seeing among socioeconomic groups”, from “a middle-class that hasn’t seen any real wage gains adjusted for inflation since 1997. There's a large part of the population that is feeling disenfranchised, in many ways voiceless, unrecognized,” says Michael, “and they see the election and other areas as ways to lash out and try to be heard, but they're shouting.”
As unsettling as this political clamor or any other screaming headline might be, it’s crucial to leave emotions out of the voting booth and your investment choices. Market fluctuations will continue to occur, but the Federal Reserve continues to feed liquidity in the marketplace and to keep interest rates low. Will we see those rise in the near future? No one knows for sure, but Michael quotes one Governor as saying he would need to see evidence of more inflation before he would support a rate hike this year.
Avoiding the inevitable distractions in our present world takes resolve and emotional strength. Michael Farr’s advice is to listen to the words of Steve Pomeranz: “Nobody can really figure out the mechanism behind or against rising markets and especially regarding what's going to happen in the near future. You've just got to focus on what you own. Sometimes that stuff's going to be overvalued, sometimes it's going to be undervalued, but underlying these securities is wealth creation for shareholders.”
So, concludes Michael Farr, buy good stuff and hang on to it.
Read The Entire Transcript HereCollapse Transcript
Steve Pomeranz: I'm very happy to welcome back Michael Farr. Michael's an award-winning author, CNBC contributor, and president of the DC investment firm, Farr, Miller & Washington. We've discussed many issues on this show, and I wanted to ask him to come by and see what's on his mind because we've had kind of a wacky year. Welcome to the show, Michael. Welcome back.
Michael Farr: Thank you, Steve. It's always good to be back with you on On The Money.
Steve Pomeranz: Hey, you know, I was just thinking, this year has been so strange.
