A Wealth of Common Sense: Animal Spirits: Invest in What You Know

In 1947, GDP contracted for two quarters in a row. Yet that wasn’t declared a recession. Why? The economy was coming off of World War II, and shifting from wartime to a peacetime economy.

Despite the economy’s wild swings during the pandemic, seeing two quarters of declining GDP in a row likewise aren’t being treated as a recession. That may make sense, even if it feels like a recession.

The concept of measuring the entire economy in terms of GDP wasn’t around until World War II. That makes the concept relatively new, and therefore subject to potential changes.

While the concept may seem a bit semantic, it gives investors a chance to focus on what should really matter. If investors have priced in a recession that hasn’t happened, stocks may have gotten oversold.

So, for most investors, that means focusing on areas they know best right now. That allows them to take advantage of the recent market selloff.

Right now, investors are coming off a period of betting on tech. That’s largely due to the fact that tech stocks tend to be more volatile. When markets soar, tech tends to perform even better. When markets are fearful, tech stocks get hit the hardest.

So it makes sense for investors to focus on areas where they’re spending in their everyday life to get more consistent returns.

To listen to the full podcast, click here.