Tenets of long-term investing, income edition

Timely insights from portfolio managers and industry experts on key financial, economic and political issues.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness.

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      By Eric Stein, CFACo-Director of Global Income, Eaton Vance Management

      Boston - In a world of amplified volatility, investors often have to sort through conflicting signals from market and economic data. Eric Stein shares three investment tenets that can help us navigate through the income markets for the long term.

      Policy changes eclipse data

      Investors, to some extent, get obsessed with data. We have economic statistics coming out almost every day. And while they're important, there can be a lot of noise in the data. What really affects markets are changes in monetary, fiscal and other government policies. These policies have longer-lasting effects than the daily data. That's what investors should be focusing on — big changes in policies as opposed to tick-by-tick moves in data, which may or may not be important for the long haul.

      Commonly held beliefs can change very quickly

      A lot of times when you see big dislocations in markets, it's not so much that reality has moved, it's that perception has moved — and perception seems to move, to me, a lot faster than reality.

      To illustrate my point, consider the narrative, "U.S. house prices can't fall," which everyone held until prices started to decline nationwide. The thought was that prices could fall regionally, but not nationally. When they fell nationally, the housing crisis led to the global financial crisis. You've got to continually test the narratives by asking yourself, "Do we really believe this or is this just the market's perception?"

      You can't buy today's world at yesterday's price

      After a period of market volatility, I think it's natural for investors to second-guess themselves and ask, "What should I have done differently? I wish I could do a trade today at yesterday's price." But it's important to set the parameters of reality: it's impossible to buy today's world at yesterday's price.

      Bottom line: I think investors need to focus on being forward-thinking when they see a big move in the markets. Prices may have moved a lot, but have fundamentals moved enough to justify that price gain or loss? If not, there isn't any trade to do. But if prices have moved a lot and fundamentals haven't budged at all, maybe there is a trade to do.