The most important news last week may have actually happened
this past weekend.
On Sunday, voters went to the polls in France, Greece, and
Germany and the results could have a major impact on world markets. French
voters sent incumbent president Nicholas Sarkozy packing and, instead, elected
Socialist Party candidate Francois Hollande. Hollande “has pledged to shift the
burden of economic hardship onto the rich and to resolve the protracted euro
sovereign-debt crisis by softening the current prescription of austerity,” according
to The Wall Street Journal. While his strategy is debatable, it will likely
cause a rift with Germany and add uncertainty to recent eurozone agreements.
Greek voters also went to the polls and “delivered a
stinging rejection of the two incumbent parties, with many people casting
ballots for smaller, far-left and far-right parties,” according to the The Wall Street Journal. This, too, will
likely result in more political and economic uncertainty. And in Germany,
incumbent Angela Merkel’s party suffered some setbacks in state elections.
What’s leading to all the angst in Europe? Here are three
things:
1.
Recession fears – 11 European
countries have now experienced two consecutive quarters of economic contraction.
2.
Unemployment fears – the unemployment
rate across the eurozone is at a record high.3. Business confidence fears – April’s read on the manufacturing PMI for the eurozone – a measure of confidence among businesses – fell to the lowest since June 2009.
Sources: MarketWatch, The Guardian
The bottom line is citizens are voting for change, but “political
realities will complicate even more what is an already delicate economic and
financial outlook for Europe, the world’s largest economic area,” according to
Mohamed El-Arian, CEO and Co-CIO of PIMCO, as reported by CNBC.
These elections show that the economic crisis that began in
2008 is still rippling throughout the world.
WHAT DO DOTS HAVE TO DO WITH
BEING A BETTER INVESTOR? In his fascinating new book, Imagine: How Creativity Works, author
Jonah Lehrer describes the creative process and what steps we can all take to
be a little more creative. One of those steps is to talk to more people and
expose yourself to new situations. By “colliding” more often with people who
are not like you and throwing yourself into new environments (like a foreign
country), your mind will come up with more new ideas than you could have
thought of on your own.
And, while business owners may not like this, Lehrer’s research
suggests, “The most important place in every office is not the boardroom, or
the lab, or the library. It’s the coffee machine.” It’s those casual
conversations with colleagues that generate new interactions and spark ideas.
This leads to an important point about investing.
Brian Uzzi, a professor at the Kellog School of Management,
studied the instant messages (IM) sent by traders at a large hedge fund over an
eighteen-month period. As reported in Lehrer’s book, these traders sent more
than two million messages over that period and the average trader was involved
in 16 different IM conversations simultaneously – talk about multitasking!
Essentially, these traders were rapidly communicating with each other and
trying to make sense of the latest news so they could profitably trade on it.
As summarized by Lehrer, Uzzi concluded, “The best traders
were the most connected, and people who carried on more IM conversations and
sent more messages also made more money.” Further, Uzzi said, “The act of
investing is like solving a difficult puzzle. These traders are trying to
connect the dots. Because the traders are listening to their network, they
manage to accomplish what they could never have done by themselves.”
In essence, successful investing partly relies on
“connecting the dots” of information that bombard us. While we’re not day
traders like the people Uzzi studied at the hedge fund, the concept of
connecting the dots still applies – albeit on a much longer timeframe. And, to
connect the dots, we have a large network of colleagues who can help us
separate the daily noise from what’s truly meaningful.
Weekly Focus – Think About It
“Everyone who's
ever taken a shower has had an idea. It's the person who gets out of the
shower, dries off, and does something about it who makes a difference.”
--Nolan Bushnell, founder of
Atari, Inc. and Chuck E. Cheese’s Pizza-Time Theaters
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