It’s the time for commencement addresses throughout the nation. During this time of year, politicians, entertainment figures, and prominent business personalities are called on to address the graduating classes of our many educational institutions. They celebrate the student accomplishments, the parents’ contributions, and throw in some advice on living in the real world.

As we progressed through another series of these addresses this weekend, the focus of the media seemed to be on the walkouts of many graduates and their parents from Vice President Pence’s address at Notre Dame. While I was appalled at the demonstrated lack of intellectual diversity tolerated by academia today, the commencement address that caught my interest was given by Wall Street Journal columnist Peggy Noonan to The Catholic University of America’s class of 2017.

Her topic was, in her words, “You must not stop reading books. That’s all. If you seek a happy and interesting life, one of depth, meaning, and accomplishment, you must read books.”

I’ve always had a passion for reading. I’m sure it first drove my love of history, and then my choices to study political science, economics, and the law. My wife was a reading specialist, so the topic of reading is one that resonates in our household.

Last year I was disappointed to read the following statistics:

I tried to track down the true source of these statistics and found that although they are cited frequently on the web since 2013, there does not seem to be any substantial research to back them up. Like many other “facts” circulating as news on the web, they appear to be “fake news.”

However, I did find a 2014 Pew Research Center survey that showed that 43% of those with a high school education or less—and, alarmingly, 22% of college graduates—had not read a book in print in the last year. In addition, while the average high school graduate in the 1960s read at a ninth-grade reading level, today the average college freshmen reads at a seventh-grade level. Amazingly, according to a federal study conducted by the National Center for Education Statistics, “Only 41 percent of graduate students tested in 2003 could be classified as ‘proficient’ in prose—reading and understanding information in short texts—down 10 percentage points since 1992.”

Unfortunately, Ms. Noonan did not contradict the impression of a decline in our national literacy:

And now I share the thing I will not forget that I saw during the campaign of 2016. I’d been seeing it for a while, but last year it broke through to me in a new way.

I saw something, especially among the young men and women of politics and journalism—two professions from which excellent work is now more crucial to our country than ever. These young reporters and candidates for office are college graduates, they’re in their 20s and 30s and early 40s, they’re bright and ambitious and work hard. But it became clear in long conversation that they’ve received most of what they know about history and the meaning of things through screens.

They have seen the movie and not read the book. They’ve heard the sound bite but not read the speech. They read the headline on Drudge or the Huffington Post and then jump to another site with more headlines. Their understanding of history, even recent history, is therefore superficial. Here is the problem: If those trying to make history have only a shallow sense of history, they will not be able to make anything good.

They came to maturity in the internet age and have filled much of their brain-space with information that came in the form of pictures and sounds. They learned, that is, through sensation, and not through books, which demand something deeper from your brain.

Why is this deeper dive through reading so important? Says Ms. Noonan,

People in politics now are getting what they know through the internet, through Google searches and Wikipedia. These can give you a certain sense of things but are by nature quick, lifeless and shallow reads that link to other quick, dry and shallow reads that everyone else has also read. Who wrote them? Nobody quite knows. And what you see is often presented at a slant. They put forward as fact what are really the biases or limited knowledge of the writer. It all becomes a big lying loop. Or at least a big, un-nourishing, inadequate one.

It’s like the quick and shallow “fake news” statistics I discovered in researching this article. In contrast, Ms. Noonan says,

Reading books forces you to imagine, question, ponder, reflect, connect one historical moment with another. Reading books provides a deeper understanding of political figures and events, of the world—of life itself.

Not only do we seem to be losing political and historical perspective and understanding by our reliance on the internet, but I think it is also diminishing our humanity. The critics will ruminate about the loss of social contact in the internet generation, but I think it goes beyond that. The lack of reading causes us to fail to develop a true sense of empathy for our fellow humans.

I’m not talking about compassion. We all can feel compassion when presented with the news story of the down-and-out, a tragic loss, or a calamity or catastrophe. However, empathy is different. It’s the ability to stand in another’s shoes and feel what they feel by experiencing it through their or an author’s eyes. Reading books of history or of fiction can help develop this essential human trait—a trait that we appear to be losing.

Ms. Noonan summed it up by remarking that by reading more deeply “you will begin not to react but to ponder, to reflect.”

An example of knee-jerk reactions by investors fostered by headlines was on display in financial markets last week. On Wednesday, the Justice Department appointed a Special Counsel on the Russian collusion, counterintelligence matter. Stocks gapped lower, resulting in a 373-point decline in the Dow in a matter of hours.

In a headline-motivated market, the news had just enough substance to offset seven months of positive information and data. It seemed to draw all of the oxygen out of a room filled with the air of optimism and hope that the plans for a new health care system, reduced costs of regulation, and needed tax reform had generated since the election.

However, as we have pointed out in the past, headline-based investing is not a substitute for a deeper investigation into the inner workings of investors and markets. This is the basis of quantitative investing. It avoids basing investment decisions on the headlines or your emotional response to the news of the day. Instead, it relies on the evidence and probabilities arising from the data not of the moment but rather of decades.

As I write this Monday afternoon, stocks have been within 61 points of the pre-gap, closing value before last Wednesday’s sell-off. Since the headline-induced dive, stocks have gained ground each of the last four days, totaling over 300 Dow points.

While this rally could simply be a so-called “dead cat” bounce, our tactical strategies have not changed their fully invested stock market posture. We are after all within a mere 150 Dow points (less than 3/4s of 1%) of the all-time stock market high hit just last Tuesday. While the market’s quick downturn last week is a cause for caution, we are still in that environment where it is best to follow the intermediate-term trend rather than panic.

Even with the recovery, U.S. stock indexes were down for the week. Bonds, commodities, gold, and foreign-developed-country stock indexes gained ground. The dollar’s continued tumble of late was the reason behind three of the four gainers—commodities being the lone exception.

Wednesday’s 2.5% drop in the NASDAQ Index was the first 2%-plus decline in that Index in 171 days. While such an event has led to just a 50-50 chance for a gain over the next week, month, and quarter, the fact that the Wednesday sell-off was followed by a gain on Thursday raises renewed hope for a continuation of the rally since Election Day.

That one-two combination has occurred 11 times since 1972, and the Index gained ground 92% of the time the next week. While gains were recorded “only” 72% of the time over the next month and quarter, the average returns for those periods were 2.3% and 3.97%, respectively.

Economic reports continued to be more positive than negative. Six out of 10 beat expectations, as manufacturing was generally positive (except the Empire report), real estate was mixed, and continuing employment claims improved.

The Index of Coincident Indicators rose once again to a new high on this cycle. Historically, it has taken a decline in the Index before a recession begins.

With Wal-Mart’s earnings report last week, the first-quarter earnings reporting season unofficially came to a close. The results were positive: More than 61% of the reports beat analyst projections.

Investor sentiment remains negative, as shown by very low bullish sentiment numbers (a contrarian buy signal). Seasonality is, on average, positive for the week before and after Memorial Day.

All in all, I would rate the stock market environment as positive, even though you might be reading headlines that suggest the contrary point of view.

As Ms. Noonan remarked in her address, “I follow the news to know what’s happening, but I read books to understand what’s happening (emphasis added).” Similarly here at Flexible Plan Investments, Ltd., I scan the headlines to recognize investor emotions, but I read our research-based indicators to understand what is really happening.

All the best,


P.S. Memorial Day is a time of reflection. So many lives have been lost in service to our country. So many years have been given by those who served and survived. Please take a moment to remember and say “thank you” to the veterans and service men and women you meet.