CHICAGO (Reuters) – It’s already shaping up to be a summer of discontent for investors, so it’s time to manage your expectations. To a global investor, there are conflicting signals everywhere: Although the U.S. economy continues to chug along like a tugboat, the “fiscal cliff” of massive tax increases and budget cuts still looms at the end of the year. Then there is the euro zone opera with the fat lady singing in Greece, Spain and elsewhere.
Do you stay out of all stocks and cower in bonds? What about the possibility of rising inflation in the United States and recession in Europe? How do you avoid the “tail risk” of multiple sour scenarios unfolding the way they did last August?
While it’s hard to predict the cumulative effect of political and financial uncertainty, you can adjust your attitude accordingly so that you deal with what will come. Here are some new approaches:
1. Earnings Expectations Aren’t Worth Worrying About
Wall Street has always been in the business of selling expectations, not managing them. So when a Facebook comes along and disappoints, why should we be surprised?
Millions get sucked into this roulette game all the time. Will earnings hit or miss analysts’ estimates? If you’re a long-term investor and not a trader, earnings estimates shouldn’t matter – if that stock is worth holding long-term. Maybe you should ignore earnings estimates from analysts altogether.