Our American neighbours have suddenly become quite respectful. When North Korean dictator Kim Jong II died a few days ago, they approached the Chinese government and held a meeting about the possible risks associated with the transfer of power to the Korean heir to the throne. Both nations are concerned that there could be political unrest in North Korea. And North Korea has nuclear weapons.
Those of us who grew up in the cold war know that these risks are real. In the 1960’s they built fall-out shelters and the Distant Early Warning Line. Remember the Diefen-bunker? It was a radiation-proof fortress built in a desert near Brandon Manitoba to house government officials in event of a nuclear attack. Remember “the hole?” It is a mile-deep tunnel drilled into the Canadian Shield near North Bay Ontario. It was built to house the NORAD command centre: they said it could withstand a direct nuclear hit. In the 1960s, Canadians were ready for trouble and made an effort to defend themselves.
Am I ready? Are you ready? Of course we’re not ready! The previous generation was ready because they survived the depression and the war. We survived rock and roll and the “dot.com” bust. For us, nuclear weapons and political unrest are part of information overload. We’ll just keep on dancin’ and see what happens.
In my investment book, Beyond the Bull, I discuss how information overload destroys your long term rate of return. The key to improving your long term return is to be constantly looking for specific economic information that is relevant to your specific investment techniques. Anything that is not what you are looking for is irrelevant overload. But if you have no pre-planned investment techniques, all economic information becomes equal in value. None of it has value because it’s not tied to your action plan.
Americans have military techniques: when they, or their allies, feel threatened, American aircraft carriers move into the region near the threat. In this case, they’d like to move those carriers into the Yellow Sea. The Yellow Sea borders both Korea and China: hence, they are being very respectful to China. Perhaps those carriers that have just been freed up from supporting U.S. operations in Iraq will find their way to this new theatre.
Similarly, Canadian pension plan managers have investment techniques: when one area of the investment world is underperforming, they like to redeploy their investments to more lucrative assets. For example, their stock market assets have produced a low rate of return since 2000, bonds have produced a good solid rate of return, and gold has been stellar. They would like to move assets from the stock market to bonds and gold. But it takes even longer to move a giant pension fund out of the stock market than it takes to move a fleet of aircraft carriers. The pension funds are so big that their selling can drive the stock market down. They have to make their moves stealthily, under cover of bullish rhetoric and strong earnings.
Investors with less than $50 or $100 million don’t have to pussy-foot around like that. We can switch from stocks to bonds to gold and back easily. What most of us are missing is neither intelligence nor liquidity. Most of us need investment techniques that will help us separate valuable information from noise. Most of us need to be like the American military or the Canadian pensions: we need to know what kind of information we are looking for and how to act when we find it.