07 Apr

Be careful who you listen to

I am deeply distrustful of what I read in the newspapers or see on TV.  There is always another side to the story, and I often don’t get to hear about that side.

I spent 9 years of my career talking to financial journalists. They would call me during or after the trading day to ask why such and such an event had taken place. Why did Vodafone rally? Why did IBM fall?

If I told them that Vodafone rallied because it had broken above its high from 6-months ago, then I would not be quoted in the paper the next day. If I told them that the rumours in the City was that Vodafone was poised to announce quarterly results which was above expectations, then I would find my name in the paper the day after.

If I told them IBM was selling off on rumours of disappointing sales in Asia, I would get a quote in their column. If I told them it was because IBM was making new monthly lows, and short-term traders were jumping on the band-wagon, I would not be quoted.

So I have a fairly good idea of idea of what is rubbish and what isn’t, when it comes to news reports. In general I stay well clear from mainstream media. I NEVER listen to news during the trading day. I am aware of news reports coming out, and I make sure I take the necessary precautions.

My friend and legendary trader Larry Pesavento sent me some images of the Dow Jones Index with various newspaper and magazine front page quotes next to them.

From the 1970’s the business week front cover story of December 1972 proclaims that the bull market will continue in 1973. Business Week timed the top with that headline. Dow fell relentlessly for the next two years.

1970s chart

 

The 1980’s weren’t short of a few ill-timed headlines, such as Fortune’s bullish call days before the 1987 crash.

1980s chart

1990s chart

2000s chart

My own favorite is from 2000, where I read a headline discussing the NASDAQ, stating that “in this new paradigm, profits don’t matter”. Within a month NASDAQ had started the bear market which was to shave off 83% of its valuation over the next 3 years.

Be careful who you listen to. Even so-called experts, world recognized authorities, may have an agenda, which they don’t tell you about. I firmly believe that talk is cheap, and that everything you need to know is in the price. Price is king. Learn to master price and the rest will fall into place.

You might want to read this article

http://www.marketwatch.com/story/how-much-do-profits-matter-to-stock-market-returns-2016-04-01

Tom.

Tom Hougaard

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