How to tweak your financial vision....

So here’s a picture of my eldest looking through a magnifying glass. She loves to steal her grandfather’s magnifier and wander around and taking a look at magically large books and ants blown out of proportion. At four she’s smart enough to put the magnifying glass down and say oooh… that was nice… but I need to go back to viewing the world as it’s most useful to me for my scale.

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Two forces dominate the news on the markets -- Journalists and Traders -- They need to know what is happening just this minute to every stock in the Universe.

Traders ask for this information - the banks and investment firms they work for do need this data. Journalists/tweeters & Bloggers feed the need of interpreting the data.

But much like the 4 year old with the magnifying glass, I’d say that’s not the right perspective for most of us. 

Imagine if you grabbed a magnifying glass and walked around for one hour like that. Imagine it’s an hour commuting to your favorite restaurant to meet a good friend. You might find your car in the drive… but driving would be pretty hard. The signs on the street would be nearly illegible, you might miss your stop. Once you got to the restaurant, you’d have to look for your friend very carefully instead of immediately recognizing them. Obviously the menu would be a bit easier to read but you might have lost your appetite from a stonking great headache.

 A one day magnifying glass view of the market might look like this -- here’s the S&P plunging in the first few hours of trading today….

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If you have a child going to college in 10 years, then you have a 10 year perspective. If you’re going to retire in about 20 years.. that is your horizon.

The market looks like a roller coaster from the magnifying glass perspective and that will give you a headache.

Now the opposite of the magnifying glass view is the telescopic view. Telescopes are the instruments of astronomers and big thinkers. Economists love the long term view - they predict the long term growth rates of China and India, they say climate change will change the world’s cities and drown major harbours. But how useful is this perspective for an individual investing with a 5 year time frame?

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Highway 1 hugs the coast of California and winds down to LA.  Imagine trying to drive down this highway telescopic vision. A telescope stuck to your eye while you’re trying to drive down a curvy coastal road cannot help you at all. You will probably go off a cliff and crash and burn like a great scene from a Hollywood movie.

Here’s a long term view of the markets… basically not very useful for planning the next 3-5 years….

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I’d like to propose that binoculars are the best analogy for looking at investing in a reasonable and sane way. You can pick them up - binoculars and nice and portable. You use your own eyes and ears and if you have a goal in the very near distance they are perfect for bringing something closer but not too close.

Our news screens, CNBC and iPhone stock trackers are the magnifying view of the world...the minute to minute and even the month to month might not be significant.A long term view over 25 years is interesting if you are raising children or doing positive things for your health, but corporations cannot plan that far in advance. 

While a 3 -5 year view - a view binoculars give us a better perspective to understand what to do.

So when you read the financial news or plan the future or read about some fund… don’t get too anxious and look at the nitty gritty and don’t take the view of long term trends that might go past your lifetime.

Lift up your binoculars….

See you next week…

Mallika