The Ignorant Investor

I noticed that I let the blog slide for the past few weeks. I've been distracted by an August vacation, a busy time at work, and good weather here in New England. More recently, coverage of Hurricane Katrina made posting to an investment blog seem unimportant. I was surprised when one economic blogger who I enjoy reading appeared to say that writing about economics in the face of a catastrophe like the destruction of New Orleans no longer held much attraction for him, at least in the short term.

I hesitate to disagree with him, but it seems to me that no matter what happens in the world, it's okay to worry about what happens with one's investments. Contributing to charity, praying, giving in to despair - these are understandable reactions to events like the Iraq war and Katrina. But a big part of investing is dispassionate analysis of events beyond one's control. There's no contradiction between feel pitying for the victims of Katrina at the same time as one evaluates Katrina's effects on the economy. People who saw the damage and immediately ran out and invested in the stocks of Lowes and Home Depot may sound ghoulish and greedy, but they're also acting rationally. And if I have the choice between rational investors and irrational investors, I'll take rational ones every single time. This is America we're talking about. Whether we're republicans or democrats, whether we think it's a good system or a flawed one, there doesn't appear to be any disagreement that currently in this country, how much money you have largely determines what kind of life you're going to live. The current system places a tremendous amount of responsibility on individuals to provide for themselves in retirement and in times of personal crisis. That's not a responsibility that can be shirked, any more than a farmer can shirk the responsibility to feed the cows, pigs, and chickens in the barnyard. Nothing that happened in New Orleans changes that.

So I say it's okay to take a few moments to put aside the dread one feels about what happened to New Orleans to rationally consider the future. I haven't yet paid much attention to commentary on the economic effects of Katrina. It's still early. No one really knows how brutally the storm damaged the refineries or oil platforms in the gulf region. The Congressional Budget Office predicted a loss of 400,000 jobs over the near term, but that strikes me as an early guess. Incurring the cost of rebuilding an entire region of the country cannot be a positive for the economy in the short term, and it's doubtful that it will result in any structural changes to our economy that will provide benefits over the long term, either.

If anyone knows how the hurricane will affect corporate profits over the next couple of years, please let me know. No matter what happens to regular folk in the real world, corporate profits are going to drive Wall Street. So think it over. Don't make any sudden moves. That's what I'm doing, anyway.