Well, the business media were -- as always -- quick. And they tended -- as always -- to showcase a single, chief reason. The problem for you, the savvy investor, is that reality is often a bit more complicated than just one showcased reason will allow. And while most members of the business media were busily highlighting single reasons, they all seemed to be choosing their own reasons.
While many media outlets discussed GE's future guidance and plans for its financial unit, few mentioned the most important factor for investors to realize. GE has repeatedly reset guidance and reorganized its financial unit this year.
If you take nothing else The Business Press Maven preaches as gospel, let it be this: You get the best sense of how strong a handle a company has on its business by the number of earnings-guidance tweaks and reorganization plans it unveils in a year.
And if the company doesn't know what's going on in its own business, how in the wide, wide, world of stocks should you?
They Just Don't Get GE!
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was no stranger to confusion on GE. A
on the underlying reasons why the market rose nearly 300 points started off by saying it was a "strong day in large part because GE reiterated fourth-quarter guidance." But the caption to the video said: "Stocks on Wall Street ended a positive day with solid gains as the Big Three automakers returned to Capitol Hill and GE tempered profit guidance."
Reiterated guidance? Tempered guidance? What's the answer?
, we learn in a headline that: "
."That sounds all right, considering the environment -- right? Well, wrong, at least according to
The New York Times
said in its headline only that "
." And by the second sentence, the article describes the company's outlook as "grim."
So why did GE's stock pop? To the
, in an article that summarized the good day in the market, it was neither GE's reiterating of expectations nor the reorganization announcement, but the dividend that most encouraged investors:
" The market was also encouraged after General Electric Co. said it expects to pay a dividend despite projections that fourth-quarter results will near the low end of its previous guidance. That raised some hopes that U.S. companies may fare better during the recession than the market has feared."
So what's the answer? Why did GE shares soar yesterday? Pick a reason, any single reason. Uh, wait a minute. Mistakes seem to be made when the business media pick any single reason, doesn't it seem?
In order to sum up the action neatly in a headline and lead, the business media will often showcase one reason for you even though stock movement can often be a product of several different reasons. Look at how this lead sentence from
gets accurately at the
reasons GE shares climbed:
" General Electric Co. shares rallied almost 14% Tuesday as the conglomerate vowed to hit the low end of its earnings range for the fourth quarter, maintain its 2009 dividend, and cut more costs from its sprawling business."
leave out? Well, the larger perspective that might guide savvy investors as to whether the rally in GE's stock will last or not. And if what encouraged investors yesterday was one in a series of changed plans and guidance, guess what? There are likely to be more changed plans and guidance, and the move in shares seems less likely to last.
The Wall Street Journal
got right to the serial nature of the company's plans in this headline -- "
" - and this lead:
"General Electric Co. encouraged investors with its latest plan to fund its financial-services unit while shrinking the operation. GE shares rose 14% even though the conglomerate lowered its financial forecast for the third time this year... GE's presentation was the fifth attempt in recent months to assure investors about its GE Capital finance unit, which has been damaged by the credit crisis."
In the end, remember this: Be wary when the business media offer a single reason for the sharp rise in a stock. And make certain, when it comes to a company's earnings guidance and grand new plans, the article you are reading is keeping count.
At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.
Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven? column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback;
to send him an email.