It feels like we are back in the 1992 election campaign – “it’s the economy stupid!” The headlines are focused on the jobs report this morning, but that isn’t the entire picture of what is happening in the US economy. The biggest challenge is looking forward and seeing growth or lack of growth. Investors are seeing the growth projections slow and it is raising doubts. The primary concern now is a double dip recession. The talking heads saying the dip won’t happen isn’t convincing or soothing the fear factor. That has been reflected in the price of stocks over the last four weeks.

As an investor how do you manage the news of an event like today relative to your portfolio? First, understand the market currently is being driven on emotions. When the clarity factor is clouded it becomes a news driven, emotional event day to day. The best course of action is to set your stops [1] according to the risk you are willing to accept and keep moving forward. Don’t get stuck in the holding pattern assuming you have a good stock and it will bounce back. That may be true, but you can also buy it back when things are looking better and potentially at a lower price.

Second, look forward. As the story unfolds and the clarity factor begins to clear build a watch [2] list of sectors and stocks you would like to own. When clarity and confidence return the trend will shift to the buyers and you will be ready to build your portfolio based on what is leading the market. Keep your focus and be patient, let the market come around to your investment strategy.

Third, respect the risk of being short. It is too easy to step into short positions and assume the risk is equal to being long. They are not equal, and as an investor you have to manage the risk of your portfolio and each position. The leveraged short ETFs magnify the risk of being wrong. Going short also goes against the normal investor psychology. Make sure you understand completely the risk you are taking on before you venture into this process.

Fourth, keep a tally of the data. When looking at economic data understand you are looking in the rear view mirror. The data is old and the current environment may have shifted in the last four weeks. Find the nuggets in the data versus the headline numbers. The jobs report will show how many jobs were created in the previous month. Currently it is important to look at the private sector jobs and hours worked. If they are improving it is positive for future hiring. That would be a positive for the psychology of today’s economic environment. Keep track of the data points that matter now. There is so much data produced weekly that some of it goes unnoticed. Find what impacts the market and specific sectors to find investment ideas.

News is important today! Focus on what will have a lasting impact on your portfolio and the markets overall. If the jobs report is good it will impact the markets today in a positive way. If it is bad, it will impact the market in negative way. The future growth will come from a combination of all the data building or eroding confidence and clarity. Short term the market thrives on news, longer term it puts the news in perspective relative to the possible outcome. Understand your time frame, your risk tolerance and patience towards your portfolio, then act according to your strategy and discipline.

It’s Your Money – Manage IT!

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Disclosure Statement: Jim Farrish is the Founder and Editor of SectorExchange.com [3] and TheETFexchange.com [4].  His primary goal is to educate people about investing.  He has taught workshops locally and nationally for over 25 years, teaching thousands of individuals, business owners, and advisors how to focus on achieving financial independence.  Jim Farrish is the CEO of Money Strategies, Inc., [5] a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Money Strategies, Inc., [6] web site.