What do you get when investors base their stock choices on spin?
It seems like every time I turn around, the stock market is plummeting or soaring based on the comments of a few powerful analysts and investors. I get it. They’re smarter than me; I never even took economics. But it seems analysts have replaced their econ training with doctorates in spin.
Thursday marked one of the year’s greatest declines in a year already characterized by massive, sudden market swings. Anyone reading these reports would fear the worst, but, despite the doom and gloom, the Dow Jones Industrial actually reached an all-time high this month.
So what gives?
In my oh-so-humble opinion, investors are taking short-cuts by relying on the messaging provided by companies, rather than probing into financials. It’s much easier to read a news release or media coverage than dig through an annual report or 10-Q.
To illustrate, I’m going to pick on Cummins Engine for a moment. Now, this hurts me. My father-in-law hearts Cummins, and so do I. But they’re such an easy target; I can’t resist.
On Thursday, when the Dow took a beating, Cummins Engine shares shot up 12 percent. Why? They lost three percent in profit but beat analyst expectations and predicted a more aggressive annual earnings outlook. So, rather than looking at the actual financials, most investors went with the talking points.
I guess this is why the stock market is so easy to play for the informed investor. — Brigitte Lyons