Flying on Instruments

Flying on Instruments

When I was in high school, I had the great good fortune to learn how to fly. Late in my training, after soloing and practicing seemingly endless touch-and-go landings, I received some elementary instrument instruction. While only qualified to fly using Visual Flight Rules–three miles visibility and a 1000 foot cloud ceiling–the FAA curriculum required that I be able to perform level flight and elementary maneuvers using basic flight instruments.

It makes sense. After all, there’s always a chance that you can get caught in unexpected weather–instrument conditions. And one of the first rules that was drilled into me again and again and again was to always trust the instruments. Our senses can deceive us. After being buffeted by turbulence without external cues, our bodies often think up is down. So my instructor taught me that when my intuition told me that the instruments were wrong, trust the instruments, not my intuition.

The reaction to Friday’s employment report reminds me of this lesson. Initially the equity market sold off and the bond market rallied—the normal reaction to a truly dismal set of numbers. But they quickly reversed themselves, apparently concluding that the numbers were an aberration, that in fact the economy isn’t slowing, and that an acceleration in economic growth is just around the corner.

But doubting the numbers is like questioning your instruments. Yes, instruments can fail and employment reports can give false signals. But it’s far more likely that the pilot’s or the analyst’s intuition is getting in the way.

"Men willingly believe what they wish," goes the old saying. In investing, as in flying, it’s dangerous to trust your feelings over the facts.

Douglas R. Tengdin, CFA
Chief Investment Officer
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