Traditional stock picking focused on various fundamentals:
– the “value” of the stock taking into account the discounted cash flows of future profits
– what the assets of the company was worth after liabilities were removed
– how the technical characteristics of the market as a whole impacted the stock price
In addition “macro” items such as interest rates and inflation, too, impact the market as a whole.
While politics has always been part of the equation, today the market seems to be moving more than ever based on what the politicians are saying they’ll do. A recent WSJ article titled ‘CEO’s Message – Fix Europe, Or Else” had this great quote from an the CEO of Kingfisher, a UK company:
The outcome is very binary. It’s up to politicians
In order to invest in this sort of climate you need to be kind of like a “Kremlinologist”, or an analyst that used to attempt to decrypt what was going on inside the USSR’s communist party leadership, based on arcane clues and utterances.
Unfortunately guessing on what politicians will say or do is a new dimension of investing, and if it is moving markets, we all need to either get better at predicting their next reaction (since they rarely seem to plan ahead and mostly react when events are far gone) or stay out of the market.
All active investors are effectively “Kremlinologists” now.