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Taking Advantage of Misleading Headlines

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( ETF Expert) --Factual headlines are often misleading.

For example, a popular financial portal offered, "October consumer confidence weakest since March 2009." Most people might interpret this to mean that consumers aren't spending and/or won't be spending their money, resulting in less revenue for economically sensitive corporations.

However, actual consumer spending has been on the rise, 1.1% in September alone.

Equally important, Retail ETFs have reflected the actual spending data as opposed to the "confidence" data. The capital appreciation far surpasses the sector competition as well as the broader S&P 500 benchmark.

Simply put, headlines can wreak havoc on human emotions. Consider the market's late April peak. At that time, headlines tended to downplay Armageddon-like scenarios, while simultaneously talking about hiring as the last piece to the recovery puzzle. Bullish optimism outpaced bearish pessimism by 3 to 1 in the "Advisers Sentiment Survey."

Flash forward to October of 2011. Today you'll see headlines that include Europe's imminent doom as well as China's hard landing/bursting economic bubble. Not surprisingly, the same newsletter survey by Investors Intelligence currently has far more bearish pessimism than bullish optimism.

Indeed, the folks at Investors Intelligence will be the first to tell you that their survey is a "contrarian" indicator. It follows that a contrarian might look at 40% declines in China ETFs and consider some of the more favorable realities.

For instance, China's PMI is rising and inflation is moderating. Moreover, if GDP growth slows more than authorities prefer, they have ample room to loosen monetary policy and/or utilize a portion of vast cash reserves in a large-scale stimulus package. The likely result? ETFs like SPDR S&P China (GXC) with a P/E near 9 would probably skyrocket.

It's not that the mainstream media intends to mislead investors. Yet the more pessimistic we feel, the more negative the headlines; in turn, the relentlesss nature of "bad news" tends to move folks from pessimism to abject fear.

Obviously, not everyone has Buffett-like wiggle room to "buy when others are fearful, sell when others are greedy." The Oracle of Omaha can afford to be wrong.

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EWA $23.28 0.00%
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XRT $98.78 0.00%

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