'Big-Picture' Thinking Will Get You Squashed

This column was originally published on RealMoney on May 31 at 9:08 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.

"There are people who, instead of listening to what is being said to them, are already listening to what they are going to say themselves."

-- Albert Guinon

Market participants often feel that it is necessary for them to form broad theories about where the market is headed. They postulate how interest rates, the Fed, foreign exchanges, macroeconomic factors, energy costs, housing and a variety of other factors are going to drive the stock market one way or the other. The arguments are often superb and the logic compelling. There is something about "big picture" predictions that is very enticing for many market players. The media promotes them constantly and at social gatherings it is usually the focus when talk turns to investing.

The problem with this inclination to form major market predictions is that there is a tendency to ignore what the market is telling us. We are so intent on looking for evidence to back up our existing theories and predictions that our minds are closed to the messages that we may find in the daily action.

Right now it is particularly important to be attentive to the market's messages. We are clearly struggling but things are neither as bad as the bears proclaim, nor are we as close to a recovery as the bulls might hope. The truth of the market is always somewhere in the murky middle and if we spend too much time developing grand theories, we will likely miss the message contained in the daily market action. ...