Maven: Confused by 'Cheap' Stocks

Careless language produces yawning inconsistencies.
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You might think The Business Press Maven lives a life that eats him from the insides, the way he dedicates so much of his meager existence to disparaging the way the business media explain the stock market to investors. But you might think wrong.

Take yesterday, for example. I was filled with such joy when, at about noon, I could literally see thought sparks shoot from the business media's mind. After a few rough days, we were having ourselves a good (if possibly brittle) little morning.

What sort of wise eye and long-term outlook ("long-term" defined as at least more than a few hours) did the business media use to put this modest upturn (which, like almost any other momentary turn in prices, is hard to relate to any single definable sentiment) into proper perspective?

There was a craze sweeping the market!

The grab for

cheap

stocks was on! Relief was in the air.

Defining Cheap

Reuters

milked a forceful headline out of about 100 minutes of trading: "Wall St rises as cheap shares attract buyers."

The market falls a few percentage points off its high, and suddenly investors wake up yesterday to find stocks cheap? Why does it sound like believing that would cost me money?

Among other issues, "cheap" is too subjective a word to use in a straight news story -- if you can ever call intraday market reports straight.

About that time,

The New York Times

said in its lead that Asian investors had taken "advantage of low prices and started buying again, sparking relief in the region."

But viewing current prices as

low

is farce, I soon learned. How? Well, just by reading to the end of the article. The third-to-last sentence talks about the five-day slide in Asian stocks, which brought China's major index down 9%, dragging American and European markets with it. Investors must "brace themselves for more," the article posits, ending with the words "it probably will not be the last time."

But what happened to those

low

prices that made people start buying again, sparking relief? If we should be braced for more, those prices must be

high

, no?

The Business Press Maven is not relieved. Just confused.

I can never make much sense of market opinion disguised as a reported piece. But as an investor, you should hold onto your wallet once those subjective words start getting thrown around. They are legitimized by being placed in a purportedly reported piece, but if you read with care, you'll almost always see yawning inconsistencies. That's what happens when you are careless with language. But when you are careless with your reading, you might come away really thinking that stocks were

cheap

and

low

. Be aware and beware.

Readers' Responses

Speaking of being aware, I am apparently deceitful, and I don't even know it. While in one of my

sob sister funks over how the business media misreport original GDP numbers, I noted the frequency with which GDP numbers were revised by 1.3 percentage points or more. It had happened seven times in 30 years, and I harped on the 25%-of-the-time thing when, as reader K.M. points out, because GDP is reported quarterly, it happens about 6% of the time. Which still sucks.

And the average revision of 0.5% is still awful and still means that those first numbers and all the conclusions about precisely where the economy is should not be reported as gospel. But since I'm an insufferable bully, turnabout is fair play. Wrote K.M.:

"You make a big deal about the reporting of the original number and the follow-up on the revised but I notice you made good use of... numbers, 7 times in 30 years and your own calculation of 1 year in 4 sure makes it sound like 25% of the time when in reality it was 7 times in 120 quarterly reports, or a little less than 6% of the time -- so you're obviously not above manipulating numbers to make your point, are you?"

I was also harangued by readers recently for my long-held skepticism on corn-based ethanol. I don't know what to say. Other than not having enough and its being too expensive and hard to transport, I think it's perfect. Big Oil will be replaced by Big Corn.

In all seriousness, some of the smaller players in this field -- such as

Xethanol

(XNL)

, as I

warned investors last year -- are bad news.

When I recently

sang the praises of sugar-based ethanol, in honor of President Bush's plan to visit Brazil this week and not lower tariffs on sugar (God help us all), readers again spoke to me about the good, long-term prospects of companies such as

Monsanto

(MON)

. Perhaps true, looking way down the road. But in Brazil, sugar-based ethanol is a current reality.

Big Oil has, in fact, been replaced by Big Sugar.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Xethanol to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

A journalist with a background on Wall Street, Marek Fuchs has written the County Lines column for The New York Times for the past five years. He also contributes regular breaking news and feature stories to many of the paper's other sections, including Metro, National and Sports. Fuchs was the editor-in-chief of Fertilemind.net, a financial Web site twice named "Best of the Web" by Forbes Magazine. He was also a stockbroker with Shearson Lehman Brothers in Manhattan and a money manager. He is currently writing a chapter for a book coming out in early 2007 on a really embarrassing subject. He lives in a loud house with three children. Fuchs appreciates your feedback;

click here

to send him an email.