The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails

Show Business

Like any complicated enterprise, nothing works all the time—even the market’s famed ability to handicap the future. Sometimes stuff happens that demands immediate action. Sometimes you will have to respond to news if the information changes the basic premise of why you bought a stock. You must use news reports as an opportunity to ask yourself one of the central questions of investing—is the reason you bought the stock still valid? Reports of criminal enterprises, a failed drug approval of a one-drug biotechnology company, and anything else that seriously harms a stock’s viability are reasons to bail and take your loss or realize profits.

On Wall Street, there is a show business element to speaking with media. Lawyers and public relations people try to manage the process. Most often you hear bland, overly general statements about the stock market or specific companies.

Consider what happens when chief executives appear on CNBC. After CNBC publishes its broadcast schedule, unsophisticated investors sometimes bid up the stock because they think the CEO will say something meaningful. The CEO’s stock price gains 1.86 percent in the two days leading up to the interview, according to J. Felix Meschke’s research, an Arizona State University business school professor. Meschke studied 3,641 interviews of CEOs of 1,491 companies from 1999 to 2001. “The actual information content of these CEO interviews is usually quite low,” he said. Ten days after the interview, the stock ...