How to read the financial pages

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18. Economic data - who needs it?

There are some investors, Warren Buffett among them, who believe that announcements of economic and monetary data should be ignored by most equity investors. The reasoning is:

• It is very difficult for investors to know what the data actually signifies.
• The data is often wrong or out of date.
• Equity and bond markets react inconsistently to economic news, so it is impossible to predict what they will do.
• Basing decisions on economic data is very short termist and while it may be suitable for traders, it isn't suitable for investors.

There is a lot of sense in this argument. If you pay no attention at all to GDP, unemployment, factory prices, the retail price index, oil prices and interest rates, but pay an awful lot of attention to the fundamentals of the businesses you invest in, you can still be very successful. The reverse is not true.

Nevertheless, it is worth getting a basic handle on the primary economic indicators, how they relate to each other, and what the textbook says about the markets reaction to them. On the next page is the shortest economics lesson you'll ever come across. Before reading it, remember the most important rule of all:

This cental fact explains why often the market appears to react perversely, rising on 'bad' news and falling on 'good' news.

• If bad news is better than expected, the market will celebrate
• If good news is worse than expected, it will go into a funk

The newspapers will warn you when economic data is expected and frequently report what the market expects. The Times has an 'Economic Outlook' column for instance which appears on Monday and provides a concise and pithy guide to the news that is expected in the week. The FT provides detailed coverage of UK and international indicators in tabular form.

1. What are the financial pages? 2. What to look for 3. Business news 4. Share prices in newspapers 5. Investment trust prices 6. Share prices on the internet and television 7. Commentary on share price movements 8. Anticipating company results 9. Finding company results 10. Interpreting company results 11. Takeovers and mergers 12. Indices 13. Sectors 14. Directors dealings 15. Unit trust information 16. Government bonds 17. Corporate bonds 18. Economic data - who needs it? 19. Key economic indicators 20. Conclusion

• How to Read the Financial Pages
• Eat The Rich