Fed's next action irrelevant to serious investors

It is amazing how trivial things can stick in one's memory, to be recalled in one of those out-of-the-blue, where-in-the-world-did-that-come-from flashes.

Criminently, it was more than 40 years ago, in Mrs. Throgmorten's English Literature class that I read the lines:

When I survey of time and space,

It fills me with a quiet mirth,

To see a human fencing off

A tiny portion of the earth.

I attribute the lines to my favorite poet, Anon., who gets credit often because I can't recall the author's name another quirk of memory.

Anyway, the verse popped into my brain as I was listening to the talking heads on CNBC discuss the market implications of an interest-rate cut by the Fed.

You know how sometimes your mind jumps back and forth among various images that are somehow related to a central idea? Well, in this case mine was hopping among those four lines, the TV guru's prognostications, and the wall chart in my office that displays stocks, bonds, bills, and inflation figures from 1925 to the end of last year.

Toss in the clich? about not seeing the forest for the trees, stir well and distill it all, and what results is the fact that far too many investors are focused on the very short term, to the point of extrapolating trends from rare or irrelevant occurrences.

Any action taken by the Fed at the next FOMC meeting may provide the monitor-transfixed traders a short-term opportunity, but in the larger scheme of things it is of little importance to the serious long-term investor.

It is far more important to serious investors that the Fed continues managing monetary policy with a steady hand to maintain the current equilibrium between sustainable growth and low inflation. That is exactly what they have been doing throughout this record-setting economic expansion, as they have provided the money supply to accommodate an increasingly productive economy.

In coming weeks there may be some economists fretting about the rapid rate of growth of the money supply and how it "always" leads to inflation. Investors should keep in mind that money-supply growth that is necessary to meet demand, especially demand created by increased productivity, does not create inflation.

Back to the wall chart and a longer term perspective. In my lifetime, investments in large company stocks of the type evidenced in the Standard & Poor's 500 have provided serious long-term investors annual compound returns in excess of 10 percent during a period that included every kind of event that would have provided reasons to not invest.

For instance: World War II, the Korean conflict, the Bay of Pigs, the launching of Sputnik, a presidential assassination, the Vietnam War, a presidential resignation, the oil embargo, the dominance of the Japanese economy, multiple recessions, etc., etc.

Through all that and more, politics ebbed and flowed and political parties blamed (took credit for) the failures (successes) of the controlling party.

So, why does a single increase, or fear of it, matter? It doesn't.

(Clark Davis is a 30-year investment veteran and CEO of Saint Louis Investment Advisors, a specialized money management company. Questions or comments can be directed to him by mail via The Springfield Business Journal, 313 Park Central West, 65806 or by e-mail at clark@slia.com.)

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