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Maven: Context Is King

Don't take all the 'beat expectations' talk at face value. Plus, putting the Dow's move in perspective.

The unconfirmed world's record of the biggest repeat mistake made by the business media has now been set.

The Business Press Maven is speaking, with his usual off-putting level of self-regard, of the unforgivable way in which the business media will report earnings compared to earnings estimates, without ever mentioning when those earnings estimates were last tweaked.

Costco's

(COST) - Get Costco Wholesale Corporation Report

earnings made it official this week, but the larger issue is this: language and context are everything when it comes to the investor understanding the stock market and in this case, context is dead as disco.

Let's put on our hip-high boots and walk through two different articles on Costco's earnings, which came out late this week.

Business Week

and a few others did not tell the whole story. In an article called "Boom Times for Costco" it said -- rightly -- that Costco reported strong results on improved sales and margins.

It dutifully recited the mean analysts' estimate and remarked that the company exceeded it. End of story.

Business Week

, for ending the story before the third act, you receive the dreaded Business Press Maven "Back of the Hand" award. What does an investor need to know before you slink off the stage?

The Associated Press

, which receives the coveted Business Press Maven "Nod of Approval" award (though it shouldn't be this easy), said basically the same thing but added this essential fact: "In late August, Costco lowered its outlook for fourth-quarter profits, saying sales on items like jewelry and furniture slowed as consumers were saddled with higher gas prices."

Why is this important -- nay, very important, nay, essential -- to know?

A lot of companies (and Costco, a top flight outfit, is not one) play hide-the-pea with their numbers so that they can exceed them.

Well, if Costco is not a hustling its way into an outperform, why is this information important to know? I'm glad you asked that.

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One: because it's a basic fact, but more importantly, it tells us that the circumstances for the company and, quite possibly, the economy, changed markedly and unexpectedly in the small period of time between the numbers being guided down and the fourth-quarter closing.

If you zero into this time period, you can learn something about the company and/or the economy.

And sure enough: gas prices tumbled down during that period of time.

The Associated Press

also reported that workers' compensation expenses were lowered than expected, another avenue investors need to explore but one cut off from those who relied on the thin

Business Week

report.

Here's the upshot. If a time peg for the last numbers change makes like Dracula and doesn't show its face to light in what you are reading, look it up yourself in news archives.

Or concentrate on an article that does it for you -- they are out there, usually.

But when it comes to making financial decisions, both big and small, you should never be without this information. As in: ever.

Let's follow up some talk about context with a brief though heated rant about language.

To wit: the business media does not seem to realize that with a stock market at about 12,000, 100 point moves are not -- on a percentage basis -- big.

Language implying otherwise will mislead investors in a big way, and The Business Press Maven cannot have that.

Soon after an airplane hit a building in Manhattan on Wednesday,

MarketWatch

came forth with a headline that made The Business Press Maven want to bum rush the

MarketWatch

copy desk: "U.S. stocks dive on reports on New York City aircraft crash."

Dive?

You want to hear more:

"The

Dow Jones Industrial Average

fell as much as 73 points to a session low at 11,794 on news of the crash. The index was last down 50 points."

As much as 73? Fifty points on a base of nearly 12,000 is a rounding error, not a dive.

In fact, to see news that a plane hit a building in Manhattan be greeted with such restraint in the market -- when the initial better bet was that the plane was flown by al Qaeda than a Yankee -- is evidence of this market's strength.

Dive? Doh!

And you think only the too-zesty-for-their-own-good online outfits are guilty of this? Here's a

Wall Street Journal

headline from this week. "Dow Zooms Past 11,900."

By how much did it "zoom" past this meaningless number? By 47 points.

Diving and zooming -- used this loosely -- amounts to hyperbole that can confuse you, the investor, and in the end make you think that the markets are more volatile than they already are.

With that, I'm going to zoom toward my couch for the rest of the weekend. And dive into it.

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.