Sound Bites Those Who Heed Them
I have been in the investment business for 23 years as a broker, analyst, institutional portfolio manager, and now hedge fund manager. I now see more money whipped around on investment themes or concepts than ever before, and this phenomenon concerns me -- because more than ever, I hear investment "stories" that are factually untrue.
Maybe it's the hedge funds, daytrading off of stories and rumors. Everyone loves to hammer us guys. Aren't we the root of all financial evil?
Maybe it's the financial media, hyping insignificant bulletins into major headlines. What was the investment significance in Martha Stewart's release anyway? Yet CNBC devoted hours upon hours of coverage to the story.
Or maybe it's just that the magnitude and velocity of news flow has grown so much that investors need to boil it down to sound bites.Whatever the reason, sound-bite trading has evolved into a major force in the financial markets. I, for one, do not appreciate it. But instead of lamenting this trend, I try to exploit and profit from the misinformation embedded in many investment themes. The purpose of this column is not to list and refute common misconceptions in the stock market today, it is to suggest that readers tread cautiously when heeding the advice of stock analysts and market pundits who reduce complex investment decisions to single, simple concepts. Take the case of the home builders last summer and fall. The common bearish sound bite at the time was to short the sector based on the impending bursting of the housing bubble. How many times did you read this in Barron's or The Wall Street Journal? Rather than following this seemingly studious advice, I did some actual research into the housing cycle and factors that affect both housing supply and demand like employment, demographics, interest rates, industry consolidation and home-pricing trends. I concluded that housing demand and pricing would taper off but not collapse, so I purchased the stocks because they were cheap and discounting a major decline in the market. The bear market in real estate has not yet occurred and the stocks have been excellent performers. So much for that short theme.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV