If you’re like me, you’re bombarded every day by financial news that screams for your attention.
But much of what we read is either irrelevant, shallow or incomplete and therefore confusing and confusing from an investment standpoint.
I’ve identified the top 10 confusions, the kind of stories that have no value or insight and are easily avoided.
1. “The market has moved.”
Or other variations, such as “Asian shares hit a speed bump,” “China expands sharp assembly,” etc.
Such soft characters don’t mean much because they are historical. It’s like saying it rained yesterday or the temperature dropped to 5 degrees last night.
One-day movements rarely tell us anything about the direction of the market. And it is a rare stock that is undervalued or overvalued in a single day.
Such “news” serves no redemptive purpose and gives something for lazy or far-sighted journalists to report.
2. “Jeff Bezos is 10 10 billion poor.”
Why should we consider whether Jeff, Bill, Mark, or any other super-rich person has lost or gained billions due to market changes? It does not affect the market value of our wallet. Plus I don’t think it bothers them too much because they are already squirrels.
Should we celebrate that these tycoons have “lost” billions? And what did they really lose? The losses are on paper and once the market returns, as always in the end, these losses will be removed.
Even so, owning one is still beyond the reach of the average person.
“. “If you buy. . . ”
If we had bought Amazon, Apple or Tesla shares thousands of years ago, we would still be making millions. Yes we know. Why rub it?
Should articles that make such observations regret any other decisions we make?
I don’t understand the points without the huge and interesting numbers involved.
Of course, with the wisdom of insight, almost everyone looks like a loser who misses a clear buy call. But 10 years ago, who knew that Amazon or Tesla or Netflix would be so spectacularly successful?
It would be helpful if such news included a system or indicator on how to better pick mega stocks in advance. But it’s very technical and very complex, okay, just for everyone.
4. “Pundit of this market. . . ”
“Experts” have to conveniently explain why the market is behaving in a particular way. Pundits also come up with long-term market forecasts. Usually, they look serious and serious and give some appropriate vague predictions.
Why should we listen to them? Because Pandit has credibility thanks to his former calls for dot-com bubble / Global Financial Crisis (GFC) / Taper Tantrum / 4th July Fireworks etc.
My main problem with The Pundit is their incompatibility. The crisis is not so difficult to predict. The market will eventually collapse. Calling that crash can be the result of luck or perseverance. This is also called sampling bias. We all like to pick cherries that make us look beautiful.
Has anyone asked The Pandit about their miss? Call them bad market? Their hit-to-miss ratio? Wouldn’t that be a good measure of The Pundit’s track record and whether we should pay any attention to them?
Most crises are unpredictable. Nasim Taleb calls them black swans. These are huge, rare and impossible to predict. In boxing, they say it’s a punch you can’t see that knocks you out. If so, who knows when or where it will come from?
5. “This reliable indicator is flashing red.”
These news items are another favorite. An obscure number or idea is taken out of the cupboard, dusted and loudly Paul is declared the octopus of money.
Why? Because indicators are three of the last four market crashes / booms expected.
These stories ignore the fact that historical performances are never replicated. Are most of these indicators the cause of waste? New scenes render past trends useless.
The Covid-1 crisis is an excellent example. There has been a lot unique about it. No market scholar today has experienced such an event: its origin is not biological but financial, social response – social distance and lockdown – on an unprecedented scale as a financial and financial remedy. And the final solution – a vaccine – is surrounded by uncertainty in both time and effect.
So there are no comparative events that can be extrapolated to predict the future.
6. “Warren Buffett …”
Apparently, Omaha’s Oracle can’t do anything wrong. Which leads to some passive reporting.
Buffett announced that he was recently dumping his US airline stock. Okay, that’s what everyone was doing. And it wasn’t really a good move backwards because the airline stock recovered a bit later. So Buffett was not uncommon in his response, he also sold out very quickly.
More critically, billionaires have a very different risk appetite that the average investment analyst leaves to retail investors. Their return requirements and investment limitations are not like ours. Then why imitate their strategy?
7. “Because the stock has rallied. . . ”
I always wonder how wise the media is after the truth. It can always invent some clever and seemingly reasonable explanations for previous market movements.
If stocks rise, it’s because of optimism about a Covid-1 vaccine, better retail numbers, more U.S. states relaunching, and so on.
No one really knows. It’s all just opinions. This is not to say that financial journalists go out and interview investors’ representative samples to find a reason to buy or sell them.
And the underlying assumption is that all investors are rational people who immediately adjust to expectations and act logically based on the latest news. But we know Homo economics is a myth. Investors are prone to all sorts of biases and cognitive shortcuts that prevent them from “maximizing their usefulness”.
At the standard press conference after the quarterly meeting of the US Federal Reserve, a reporter repeated the same question that had been asked at the previous press conference.
Is the Phillips curve broken and if so why? It has become one of the lasting mysteries of life.
The Phillips curve is an economic concept developed by AW Phillips. The essence of it? There is an inverse relationship between inflation and unemployment. Higher inflation involves lower unemployment and vice versa.
Yes, the curve is broken and there are many obvious reasons for this.
It is not a pity that despite record low unemployment, wage inflation has been sounded nuted. There are many reasons at work. The U.S. economy has shifted from manufacturing to service, simultaneously reducing the power of employee bargaining; The gig economy has made contract workers ubiquitous; Automation leads to an additional supply of labor; Etc.
Creating another so-called “paradox” cycle: disconnection between Main Street and Wall Street. There was no “connection” to get started. The stock market is related to economic performance after three or four quarters. And even that relationship – 0.28 – is a weak one.
These rarely qualify as paradoxes.
9. “Must have 10 stocks”
It doesn’t matter if the market has crashed or is at an all-time high, someone will always talk about a few great stocks অপ unpublished gems that need to be bought today, unless we want to risk getting lost in the next Amazon.
To be sure, some of these picks can be great buys. But these recommendations are based on sketched information. A little deep digging and analysis is often ridiculously shallow. A recommendation based on “fundamental analysis” means the call was made after a cursor look at 12 months of forward revenue, EPS / EPS growth and forward PE ratio. That’s it.
Some of these stockpilers completely ignore the basics when issuing their calls. They focus on technical – relative strength indicators, support levels, etc. – which some retail investors perceive.
Of course, stockholders rarely mention stock risks and declines. It’s all pink forecast and smooth boat in front. But really they just seem to be incomplete, confusing, and irresponsible analysis.
10. “The company has blown expectations as EPS has increased by X%.”
I am not advising that companies should not report their latest numbers. But instead of telling the facts financially and stopping there, income reports should be given a complete backstory. Once we understand the background, often the results are not so straightforward, and the meaning of the EPS “bit” is not too much due to two major problems:
- Companies have invested heavily in share buybacks. Over the past decade, U.S. public companies have thrown in 4 4 trillion in buybacks. Impact? The rate decreases in the EPS calculation and as a result, the EPS increases, even if the total income over the period remains stable. In fact, if enough shares are bought, the EPS goes up even if the perfect income goes down.
So if the story has any role in EPS growth, if any, does not highlight the role of share buyback, then we do not know biological growth vs. financial engineering or indeed, if the story has any value or any other waste of time
- CFOs are good at managing analysts ’expectations gradually downward with quarterly progress. So companies easily beat a small number. Companies are required to disclose projected EPS at the beginning and end of the quarter.
But these are just two components of the EPS problem. Investors see this EPS bit and start extrapolating for the next few years. But companies may not have the cash to pay dividends or return shares. In fact, if they get support from the US government, they will not be allowed to buyback for a few years.
Of course, these are just 10 of the most common financial news goof-ups. No doubt there are many more.
But if we can keep a close eye on these and successfully filter them out, our daily reading will be more focused and productive.
For more insights from Vinod Shankar, CFA, visit Real Finance Mentor.
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All posts are the author’s opinion. As such, they should not be construed as investment advice, or the opinions expressed must not reflect the views of the CFA Institute or the author’s employer.
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