USE THE NEWS
MARIA BARTIROMO
SUMMARY
The book opens stating that market volatility increased due to the 2001 recession. While the type of news has changed, fundamentals of important driving factors of news have not. Between the years of 1983 and 2000, the number of individual investors grew from 42 million to 85 million.
Bartiromo became involved in the field by interviewing fund managers, investment banks, and CEOs to discern which indicators they valued. She utilizes analyst reports frequently, which are typically provided as part of institutional bank packages, or online if a journalist cites the report for an article. She focuses her efforts on sectors experiencing the highest level of growth.
In order to analyze an industry, she creates a list of specific issues for that industry. When investing in a particular stock within an industry, she develops questions affecting news headlines, and questions affecting fundamentals. She attempts to anticipate problems for the stock by finding answers to the questions she creates for herself. After examining the fundamentals, she examines the stock chart.
The trading floor of the NYSE is divided into the blue room, garage, main room, and high-tech space next door. Brokerages employ freelancers to obtain the best floor space for trading, as space on the floor affects purchase price for stocks. Direct access brokers extract information from the floor in real time while waiting for an ideal entry price. Traders such as these may not be aware of influential news headlines, seeking solely to purchase the stock at the best price possible. Brokers often break large orders into smaller portions, attempting to purchase their shares at a lower price.
Fundamentals, expectations, and sentiment are the primary drivers of a given stock. Wall street defines fundamentals as revenues and earnings. These statistics may be collected from the company's quarterly 10-Q release. In addition to learning the past revenues and earnings, listed on the reports, it is important to anticipate future performance by identifying the products responsible for the majority of the company's sales, and monitoring the success of these products.
Top-line sales growth and market share
are important to Robert Loest, who looks at earnings growth and
potential to increase market share. Paul Meeks focuses on companies who are
growing revenues and increasing profitability, even if
less-profitable companies are increasing market share more rapidly
due to competitive pricing. Some people analyze stocks using cash
per share to evaluate percentage of return on cash.
The book proceeds to give examples of industry specific analysis. Nick Lobaccaro, at the time of the
book, advised to analyze auto stocks with sales, pipeline, and
success in high profit margin vehicles. Tom Brown stated banks trade on forward
P/E, not on cash due to investing requirements
Loan quality is the biggest factor of
success for a bank. The author advises to monitor the bank's
holdings, as its investments could lead to huge profits if risky to
increase forward P/E, or huge potential downside if too risky.
Henry McVey stated brokerage companies
could be assessed by customer service and range of ventures, Amy Butte divided brokerage companies into
capital markets, asset-based business, and e-finance, stating risk-to-reward and return on equity
were most important factors, advising to monitor the ratio of liquidity to
long-term fixed assets as potential for growth, and to assess whether or not company was
increasing P/E by virtue of cost-cutting or true growth.
According to Denney Calcemo, energy
stocks rely on balancing supply and demand. A red flag, according to Calcemo, is to
watch the amount of the company product. According to the author, rising oil
prices can have a negative effect on many industries, but certain
companies can benefit from higher oil prices as companies are forced
to buy oil and keep up supply.
Jonathan Cohen states that an internet
company's business model is its key feature. Cohen states red flags are loss of
market share, insider selling. The author states profitability is key for
internet stocks to long-term success.
Jessica Rea Cohen states health of
advertising and media sector are vital to entertainment stocks. Rea Cohen looks at underlying cash flow
growth for cable companies. Author states to consider how sector
health has ripple effect, such as major advertisers going under.
Joseph Ricardo states to watch for
sales and acquisitions to assess pharmaceutical stocks. Ricardo states that watching regulatory
factors key to assessing sector health, and the author adds that checking the FDA website is a good tool to obtain information on regulatory factors. Author states patent expiration is huge
red flag as a large source of revenue dries up.
Consumer confidence, interest rates,
and unemployment numbers are key to gauging retail sector, according to Dana
Telsey. Telsey states concept, execution, and
management most important to individual retail store. According to the author, execution can be measured by inventory
management, management measured by amount of insider trading,
and concept measured by unique services offered.
Paul Meeks looks at leadership in a
tech company, and size of market in which stock competing. Dan Niles compares revenue to margins to
discern if company cutting costs on important items such as R and D, or slashing prices too much, in order to generate profit.
Meeks states telecommunications
companies must be involved in all popular trials. Ravi Suria warns to watch debt for
telecommunications stocks.
According to the author, expectations are most important for all stocks, and expectations are driven by earnings. Sentiment and expectations can be
objectively measured by observing money flows, momentum, technical
analysis, and volume. News regarding expectations is very
important, as news is sometimes even able to trump consensus earnings
beat.
Volume represents all of the stock
shares, bonds, or commodities contracts sold in a period, reported by
all the exchanges. A large spike in volume may indicate that a big news headline has affected the company, according to the author. Volume drives momentum, a key trend in stocks. Technical analysis utilizes volume and
momentum to make predictions. Support levels are prices which are
supported by historical rallies, a tool of technical analysis. The author states that technical analysis can quantify market signals regarding a stock.
As speed of news released has
increased, the standards for what can be reported have dropped. Information is now fragmented as parts
of stories are released before all info available. The main sources of news are company releases, federal government releases, statements from market professionals, and unconventional sources.
News from governmental services is unbiased, and released on a monthly basis. The federal reserve board meets on the third Tuesday of each month, with the exception of February, April, July, and September, and discusses changing the federal interest rates. In order to accomplish this task, the federal reserve board raises rates by selling securities, or, conversely, lowers rates by buying securities. The meeting minutes are published on the federal reserve website.
Five of the goverment's reports are examined in the book. The first detailed is the employment report, a collection of the amount of jobs created or lost that month. Next is the employment cost index, or ECI, comprised of total employment cost including salary, and benefits. The consumer and producer price index which chart the average cost of goods for consumers and supplies, respectively. The final report described is the wealth effect: a study based on surveys of wealthy people gauging their general market attitude.
As was earlier mentioned, the FDA regulatory news can be important for biotech stocks, as it may unlock profits with the approval of drugs. Mergers are controlled by the Federal Trade Commission, which is why it is wise to watch the FTC's news reports for details on large mergers which could alter the competitive landscape in a given industry. The IRS reports on tax refunds dispersed can also be an indicator of money which may flow into the stock market, as many people invest their tax refunds. High tariffs can affect competitive landscape by disadvantaging companies who import or export more than their competitors, and the International Trade Administration releases updates on tariff rates. Additionally, government news can affect a certain sector's competitive landscape through regulation.
Company press releases put a positive spin on the news. If a company does not publish a press release on an issue that the market perceives as important, the stock may drop as a result, according to the author. The analysts' questions during press releases will, obviously, affect the analysts' ratings of the company, and therefore are important to analyze expectations, as expectations are partly based on analyst ratings.
The author advises to cross reference claims made in company press releases with available information regarding the company's products, sales, and those of its competitors. She also advises to monitor insider trading for large amounts of selling.
When analyzing company news, the author advises to analyze for the key points of business model, growth prospects, management, customers, suppliers, strategic partners, competition, and market environment. She watches news regarding the leadership's adaptation to change. She watches for news regarding the customer base, and the market demand for the company's products.
She looks at reports on past acquisitions in order to formulate realistic expectations for future acquisitions. She looks for news on the acquired company's products, and the demand for the acquired company's products, in order to gauge the potential growth for the acquiring company.
Companies skew EPS, the most commonly reported feature of the self-released earnings report, by offsetting losses with one-time gains, ignoring stock-option grants to employees, utilizing metrics that favor key areas of success rather than presenting an overall picture of their successes and failures, and cutting employees, or R&D, in order to boost profits. Some companies will book sales to profits, even though the products have not been delivered, and the deal not completed, as of the time of reporting. Consequently, the author states, the quality of earnings is more important than what is reported.
The third type of informational source analyzed in the book is information from market professionals. The phrase "following the smart money" refers to the emulation of the actions of market professionals. Individual investors, star analysts, mutual fund families, and venture capital firms may all be considered revered professionals. None of these individuals are perfect, and all have an agenda. Some analysts are afraid to downgrade a company for fear of losing connections within a company. Validea is a website which tracks analysts' history with respect to the accuracy of their predictions.
Finally, the author discusses unconventional sources. The first such source, online message boards, are difficult to rely upon because the contributors may have excessive bias, leading to smear campaigns, optimistic, and pessimistic predictions. However, the author states that unconventional sources may help alert an investor to a trend. Peter Lynch called "street lag" the gap between a product becoming popular among customers and wall street adjusting expectations, and therefore share price, based on the rise in popularity. Peter Lynch also advised investors to invest in areas with which they were familiar.
Large investment firms are judged on a short-term basis in comparison to the performance of the major stock indexes. A tactic which firms will utilize in order to boos performance, called "window dressing," is an operation in which the firm buys a large amount of a stock which it already owns in order to drive up the share price even further.
Wall street jargon is sometimes utilized to convince individual investors that they are not intelligent enough to make wise investment decisions. Individual investors are disadvantaged in some respects, as they are not typically able to obtain shares of an IPO prior to release, and consequently miss out on earnings when share prices rocket upwards after companies become public. Investors have a wealth of information available to them which they may utilize to boost their performance as much as possible.
The author advises individual investors to create a calendar with important dates regarding their stocks, and key dates for reporting affecting general market trends. All earning reporting dates for key companies within a sector that the investor has shares in should be marked, according to the author. She states that analyst meeting dates, and industry conference dates are also important to monitor. Trade shows are important to watch because they affect expectations for company sales based on new products introduced. Federal economic reporting dates, and federal reserve board meeting dates are also important to notate.
She states that individual investors should be apprised of seasonal market movers. Earning dates, important conferences, phenomenons known as the October hex, and Autumn slump, which are bearish trends, and bullish trends of the January effect, and Winter tech rally, should all be within the investor's consideration. The phenomenons which the author lists are self-explanatory, representing historical market slumps in the fall, and october, and historical market rises within the tech sector in winter, and in the entire market for the first 4 days of the new year.
Investors should be vigilant for potential red flags such as bulk insider selling, or secondary offerings, which companies may utilize to raise cash when they are financially unstable. Macro red flags should also be attended to, as sector-wide weakness can hurt stocks within the sector, even if they are fundamentally sound. International news can also affect share prices, and should be monitored, according to the author, although within the context of how the news will affect a particular stock's market expectations. Another common red flag is the "confessional period," during which a company adjusts its earnings expectations to the lower side two-three weeks prior to reporting their financial quarter results, in order to control the damage the results will affect upon expectations.
Individual investors should prioritize fundamental analysis and analyze why a stock is trading at its price-to-earnings multiple to discern if the company truly is undervalued or overvalued. Companies within the same sector should be compared in order to assess which is stronger and worthy of investment. Investors should understand the accuracy and limitations of data, and never forget the importance of common sense.
Five of the goverment's reports are examined in the book. The first detailed is the employment report, a collection of the amount of jobs created or lost that month. Next is the employment cost index, or ECI, comprised of total employment cost including salary, and benefits. The consumer and producer price index which chart the average cost of goods for consumers and supplies, respectively. The final report described is the wealth effect: a study based on surveys of wealthy people gauging their general market attitude.
As was earlier mentioned, the FDA regulatory news can be important for biotech stocks, as it may unlock profits with the approval of drugs. Mergers are controlled by the Federal Trade Commission, which is why it is wise to watch the FTC's news reports for details on large mergers which could alter the competitive landscape in a given industry. The IRS reports on tax refunds dispersed can also be an indicator of money which may flow into the stock market, as many people invest their tax refunds. High tariffs can affect competitive landscape by disadvantaging companies who import or export more than their competitors, and the International Trade Administration releases updates on tariff rates. Additionally, government news can affect a certain sector's competitive landscape through regulation.
Company press releases put a positive spin on the news. If a company does not publish a press release on an issue that the market perceives as important, the stock may drop as a result, according to the author. The analysts' questions during press releases will, obviously, affect the analysts' ratings of the company, and therefore are important to analyze expectations, as expectations are partly based on analyst ratings.
The author advises to cross reference claims made in company press releases with available information regarding the company's products, sales, and those of its competitors. She also advises to monitor insider trading for large amounts of selling.
When analyzing company news, the author advises to analyze for the key points of business model, growth prospects, management, customers, suppliers, strategic partners, competition, and market environment. She watches news regarding the leadership's adaptation to change. She watches for news regarding the customer base, and the market demand for the company's products.
She looks at reports on past acquisitions in order to formulate realistic expectations for future acquisitions. She looks for news on the acquired company's products, and the demand for the acquired company's products, in order to gauge the potential growth for the acquiring company.
Companies skew EPS, the most commonly reported feature of the self-released earnings report, by offsetting losses with one-time gains, ignoring stock-option grants to employees, utilizing metrics that favor key areas of success rather than presenting an overall picture of their successes and failures, and cutting employees, or R&D, in order to boost profits. Some companies will book sales to profits, even though the products have not been delivered, and the deal not completed, as of the time of reporting. Consequently, the author states, the quality of earnings is more important than what is reported.
The third type of informational source analyzed in the book is information from market professionals. The phrase "following the smart money" refers to the emulation of the actions of market professionals. Individual investors, star analysts, mutual fund families, and venture capital firms may all be considered revered professionals. None of these individuals are perfect, and all have an agenda. Some analysts are afraid to downgrade a company for fear of losing connections within a company. Validea is a website which tracks analysts' history with respect to the accuracy of their predictions.
Finally, the author discusses unconventional sources. The first such source, online message boards, are difficult to rely upon because the contributors may have excessive bias, leading to smear campaigns, optimistic, and pessimistic predictions. However, the author states that unconventional sources may help alert an investor to a trend. Peter Lynch called "street lag" the gap between a product becoming popular among customers and wall street adjusting expectations, and therefore share price, based on the rise in popularity. Peter Lynch also advised investors to invest in areas with which they were familiar.
Large investment firms are judged on a short-term basis in comparison to the performance of the major stock indexes. A tactic which firms will utilize in order to boos performance, called "window dressing," is an operation in which the firm buys a large amount of a stock which it already owns in order to drive up the share price even further.
Wall street jargon is sometimes utilized to convince individual investors that they are not intelligent enough to make wise investment decisions. Individual investors are disadvantaged in some respects, as they are not typically able to obtain shares of an IPO prior to release, and consequently miss out on earnings when share prices rocket upwards after companies become public. Investors have a wealth of information available to them which they may utilize to boost their performance as much as possible.
The author advises individual investors to create a calendar with important dates regarding their stocks, and key dates for reporting affecting general market trends. All earning reporting dates for key companies within a sector that the investor has shares in should be marked, according to the author. She states that analyst meeting dates, and industry conference dates are also important to monitor. Trade shows are important to watch because they affect expectations for company sales based on new products introduced. Federal economic reporting dates, and federal reserve board meeting dates are also important to notate.
She states that individual investors should be apprised of seasonal market movers. Earning dates, important conferences, phenomenons known as the October hex, and Autumn slump, which are bearish trends, and bullish trends of the January effect, and Winter tech rally, should all be within the investor's consideration. The phenomenons which the author lists are self-explanatory, representing historical market slumps in the fall, and october, and historical market rises within the tech sector in winter, and in the entire market for the first 4 days of the new year.
Investors should be vigilant for potential red flags such as bulk insider selling, or secondary offerings, which companies may utilize to raise cash when they are financially unstable. Macro red flags should also be attended to, as sector-wide weakness can hurt stocks within the sector, even if they are fundamentally sound. International news can also affect share prices, and should be monitored, according to the author, although within the context of how the news will affect a particular stock's market expectations. Another common red flag is the "confessional period," during which a company adjusts its earnings expectations to the lower side two-three weeks prior to reporting their financial quarter results, in order to control the damage the results will affect upon expectations.
Individual investors should prioritize fundamental analysis and analyze why a stock is trading at its price-to-earnings multiple to discern if the company truly is undervalued or overvalued. Companies within the same sector should be compared in order to assess which is stronger and worthy of investment. Investors should understand the accuracy and limitations of data, and never forget the importance of common sense.
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