Here is a key question for investors and traders alike: Do you want to be entertained by the colorful opinions of bloggers about what government should do or would you rather profit by understanding what they will do.
We have highlighted the distinction between normative and empirical analysis -- opinions about what ought to be done versus the dispassionate study of behavior. We suggested in December that the Fed was on a mission, using creative tactics. We highlighted an excellent article from Abnormal Returns describing the difference between "Positive and Normative Blogospheres." We have suggested that those offering opinions should first get some information -- at least reading some Fed briefings and old transcripts of meetings.
A Good Explanation
While doing research for our sister site, Election Stocks, where we analyze candidate issues and link them to specific investments, we came across a five-year analysis of the Iraq war. We recommend checking out our comment on this subject, and the complete study.
Meanwhile, the explanation of the work provides an excellent insight into the distinction between those doing "politics" and those doing public policy analysis. The report comes from a private sector group. They make money by providing analysis, not opinion. The following is the explanation of their mission, taken from the report:
The debate is over whether the invasion was a mistake in the first place, while the divisions over ongoing policy are much less real than apparent.
Stratfor tries not to get involved in this sort of debate. Our role is to try to predict what nations and leaders will do, and to explain their reasoning and the forces that impel them to behave as they do. Many times, this analysis gets confused with advocacy. But our goal actually is to try to understand what is happening, why it is happening and what will happen next. We note the consensus. We neither approve nor disapprove of it as a company. As individuals, we all have opinions. Opinions are cheap and everyone gets to have one for free. But we ask that our staff check them — along with their personal ideologies — at the door. Our opinions focus not on what ought to happen, but rather on what we think will happen — and here we are passionate.
The Stratfor description is exactly what makes public policy analysis valuable. It is just what we are trying to do at "A Dash." While we have opinions about what government should do, our mission is in helping investors understand past actions and predict future moves.
Those who do not understand this distinction are failing an investment Breathalyzer test. They have become intoxicated with the punditry and the debate over policy while losing focus on the cumulative effect of the many incremental policy changes. These changes are starting to add up, (yet another future topic.)
Meanwhile, if you do not see the difference in these types of analysis, you should do the following:
Turn over your investment car keys to an index fund manager!