Spinonomics

By Nick Harrison | Email | Print | 85 Comments |

What do you get when investors base their stock choices on spin?

Spinonomics.

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

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85 Comments

Comment by Amber Naslund
July 30th, 2007 at 12:56 pm

What’s even crazier to me – and hits me like a barrel of concrete sometimes – is that the ENTIRE stock market and investment game is one giant party of speculation in the first place. It’s all about perception. Sure, stocks take a dive when a company posts lower than anticipated earnings. The smart companies – and I won’t call anyone out here – are the ones that always project *lower* than everyone thinks they should, and they always manage to post above expectations. Company lagging a bit behind earnings expectations? Why not buy a company for a short term stock push? It’s enough to make those of us who are “modest” investors throw up our hands and give into the notion that no matter how smart we might think we are, some punk at a desk at Ameritrade need only get bored after lunch and decide which companies will take the cake today.

Comment by Brigitte
August 2nd, 2007 at 1:49 pm

Oh, I know. And don’t get me started on trading after markets close. How is it that you go to bed with one stock price and wake up with another? Shifty.

Comment by Lucus
August 2nd, 2007 at 6:02 pm

Excellent point Amber, jockeying a mouse is all it really takes. Well, understanding that the folks down on Wall Street are fickle helps.

I will call out a company for you and well all love this one: Chipotle Mexican Grill. They have blown away their earnings ‘estimates’ and will for the foreseeable future. Last week the market tanked, causing CMG to go down for no reason directly related to their business. Of course they report a great quarter and the stock price flies up. If you’re looking for some more that fit the same bill, try Garmin (GRMN).

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