The Importance of Flexible Convictions

One of the keys to successful investing is maintaining a high degree of intellectual flexibility. Good traders can turn on a dime, because they never "marry" any single position. The surest way to lose money is to get overly enamored of any one idea or philosophy.

As a person who studies markets, it's my goal to remain ideologically agnostic. That doesn't mean I'm neutral or lacking in viewpoints (longtime readers know that I can be all too opinionated). Rather, it's a recognition that if and when the evidence warrants doing so, I am prepared to toss aside any of my beliefs at a moment's notice.

On the basis of that viewpoint, here's my short list of subjects, beliefs and analyses that I am waiting to be proven wrong on:

Retail Sales

My expectations were for a holiday season that was only a modest improvement over last year. I anticipated high-end luxury goods sellers doing extremely well, while discounters like Wal-Mart (WMT - commentary - Cramer's Take) and Target (TGT - commentary - Cramer's Take) would muddle through. I also expected to see e-tailing continue to grow at a double digit pace.

What's the significance of this to the market? First, this dichotomy reflects the way the benefits of 2003's tax cut fell. That's important, because it helps determine how sustainable the expansion is. Further, we can also read into these results to determine the impact the energy cost squeeze is having on consumers. As we progress into 2005, I am concerned that the macro stimulus of the real estate complex -- new- and existing-home purchases, household refinancings, home renovations and durable-goods spending -- is starting to show signs of fatigue.

This "complex" has been a terrific spur to consumer spending and to economic expansion in general. While I expect the sector to soften, I will look for signs of continued robust sales, which would be evidence I am wrong.

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Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries, and is a member of the board of directors of Burst.com, a streaming media software company. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to [e-mail].