Wednesday, April 8, 2009

The News is Bad ... Time to Buy

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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In the New York Investing meetup last night, we had a talk on media manipulation of the news in the oil market. The news reported is almost completely negative and is contradicted by the facts. Under such circumstances, it's not surprising investors who rely on the news make bad investing decisions. The headlines today will likely turn out to be another great illustration of this point. When I turned on my computer this morning, there was an unrelenting barage of negative headlines. My initial reaction was that I had better buy quickly after the market opens to take advanatage of this.

What impression would these headlines make on you?

- "Stock Futures Fall on Earning Worries"
-" World Markets Track U.S. Lower Amid Earnings Fears"
-"Oil Falls below $48, Following Stocks Down"
-"Sharp Forecasts Bigger Loss Amid Global Slowdown"

The unrelenting picture of danger and risk painted by the media will keep the average investor far away from the market - and he or she will not make money as a result.

The news is also not actually as bad as the headlines indicate either, but you have already been put into a certain mindset before reading the article (assuming you do, many floor traders only see the headlines). For instance, how bad were the stock futures that were down on earning worries? A quote from the article: "Ahead of the market's open, Dow Jones industrial average futures fell 42, or 0.5 percent, to 7,720, ... Standard & Poor's 500 index futures fell 3.40, or 0.4 percent, to 810.60, while Nasdaq 100 index futures were unchanged at 1,280.75." A more accurate headline for this story might be: "Despite Earnings Worries Market Having Trouble Selling Off". Don't hold your breath in waiting for headlines that provide an accurate picture on what is going on though, it's not going to happen.

Alcoa supposedly set off these earnings worries the media is reporting today. It earnings were a few cents below expectations. Nevertheless, the stock is having trouble selling off in premarket trading. This is extremely bullish and is another piece of evidence that all the bad news has been priced into the stock. That's not the slant in media reports however. Today's stories are emphasizing how bad things were LAST quarter. The market doesn't care about this. It is interested in what is going to happen two or three quarters in the future. If the stock goes higher, the market is optimistic about the future - and its only the market's opinion you should care about if you want to make money.

NEXT: Fed Minutes Take Oil on Roller Coaster Ride

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

1 comment:

AMIT said...

I think there was earthquake in stock market since last few months.