How To Read the Financial Press – Warning! You Might Get Bullish

Monday, January 11, 2010

x-509227_readingMost media reports have a slant – not to sway the reader, but to combine pieces of information into a sensible composite. High quality publications, to prevent biased reports, require that a reporter include all relevant information gathered. Today’s news reports are filled with positive information not reflected by the articles’ downbeat headlines. Here’s how to find it…

Note: I am talking about print media only. Very few broadcasters are willing to spend the time needed to provide a thorough report, much less include out of sync facts.

In court, the “preponderance of the evidence” is appropriate. But not in investing. When most investors believe one thing, prices already reflect their expectations. Earning a superior return requires spotting new or changed trends before others. One way is to diagnose financial press reports, looking for new or changing information.

First, a comment about reading habits. I believe it’s important to read selected articles through to the end. I know many investors like to cover the waterfront, reading from many publications. But, to find the hidden nuggets, it’s better to read a few well-chosen publications thoroughly than to scan many publications shallowly.

Now for an example:

This last weekend, The Wall Street Journal’s lead story (January 9-10; page A-1) was about the US Department of Labor’s employment report released last Friday.

  • Headline: “Economy Still Bleeding Jobs”
  • Subhead: “85,000 Lost in December; Jobless Rate Holds at 10% as Discouraged Workers Give Up”
  • First paragraph: “Employers cut another 85,000 jobs last month, dashing hopes of a turnaround in employment, even as the US economy grows.”

Pretty dismal stuff, backed up by facts and citations in the following paragraphs. The final blow is a look at the miserable home construction employment numbers.

Now, let’s look at the information that didn’t fit the thesis that employment is terrible and not improving. As is typical, it comes near or at the end of the article. In this case, it’s in the last two paragraphs:

In brighter spots of the [US Department of Labor] report, the temporary-help sector added workers for the fifth month, with 46,500 jobs gained. Gains in temporary employment often signal increases in overall hiring: Employers hire temps in the initial stages of recovery until they are confident the upturn will be sustained.

Tig Gilliam, CEO of Adecco North America, the largest staffing company in the US, said his firm is beginning to see more employers moving toward promoting temporary workers to full-time positions.

So, there we have it. Temporary help usage, a leading indicator of employment, continues to rise. (See my previous write-up, “Friday’s Unemployment Number Approaches – Time To Regain Perspective” for other employment growth indicators.) The rest of the article, while accurate, paints an incorrect picture of where things are headed. This is the kind of information we can take advantage of.

Stagnant or worsening employment is the concern. But, in this article, we get proof that the situation actually is improving. When this improvement becomes widely know and accepted, stock prices will have risen, reflecting investors’ and analysts’ reduced worries and higher expectations.

So, the financial press can be a valuable source for investment ideas by looking beyond the reporter’s premise.

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One Response to “How To Read the Financial Press – Warning! You Might Get Bullish”

  1. Beverly Robsham

    John! – Great Article. so many of us have been trained to scan! Oh to be in the temp.employment business about now.


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January 2010