Cocktail Investing

Chapter 4Read the Economy Like a Pro

The future ain't what it used to be.

– Yogi Berra

An economist is a man who states the obvious in terms of the incomprehensible.

– Alfred A. Knopf

We've already talked about how successful investing requires a bigger view than just the latest “hot stock” tip and gave you the background to understand the biases and assumptions hidden in the way information concerning the economy is presented. Like so many, Reilly and Tyler's savings were seriously damaged because they reasonably believed that the so-called experts they saw on TV or whose articles they read were reliable. Having been so devastated they are understandably unsure of where to turn for information, making decision-making painful and putting additional strain in their marriage.

In this chapter we are going to show you how to understand the current state of the economy and, even more importantly, how to look forward using Chris's two favorite words: vector and velocity. You will come to see that understanding these two things is critical for successful investing and that you cannot simply go with “information” from the headlines.

Before we go further, though, we need to make one thing clear. Remember to always keep in mind that for at least the near to medium term, it really doesn't matter what we think or what you think about the way the world works. The only thing that matters is what the market thinks about the way the world works—up until the point when the market discovers ...