Monday, November 21, 2011

How To Read The News

It is critical that investors acquire the skills necessary to properly read the news.  Simply picking up a mainstream periodical and absorbing presumed factual information is tantamount to a self imposed death sentence.  Journalistic trickery requires investors to vigilantly pursue objectivity in order to protect and grow precious capital.

Two weeks ago we showed you an example of this as highly regarded Bloomberg News released the following two stories within a 3 hour period:
A novice news reader could be very confused by this information.  His plight is only exaggerated by the 200 point daily market swings which have become normal.  In this particular case, the news reader should check his American Express annual summary and see what effect monetary inflation is having on his life.  Perhaps it would be obvious that the cost of everything purchased is rising while the value of everything owned is declining.  Investments decisions can be altered accordingly.

This morning we are struck by the following headline which has been written for effect.
We are to feel doom as a shock to the rare earth market must be imminent.  Panic must be looming in the ranks of shareholders.  Only fools will be left holding the above mentioned shares.  The article continues:
In order to objectively process this information we must consider all facts acquired though past research and market participation.  Rare earth prices have experienced outrageous gains over the past 18 months.  Are we to assume that these gains have evaporated?  The rest of this paragraph offers a statement likely missed by most readers:
Wait a minute.  This looks like an entirely different story yet has been taken from the same paragraph as the previous statement.  We perceive a price rise of 1,140% in roughly 18 months.  How can this be?  Imagine if the title of the article were changed to, "Even After Vicious Declines Rare Earth Prices Still Up 1,140% In 18 months!"

How To Profit From This Skill:

We aim to help readers understand how to profit from these observations.  New readers should know that rare earth element prices affect the current or future gross revenue per kilogram of product produced by mining firms in this sector.  When market sentiment turns negative, it is critical to observe what the actual operating conditions look like for companies in that particular business.  In this case, they look incredibly good.  The companies we cover have little or no debt, plenty of cash, rich deposits and demand growth for the next half decade.

When unaware journalists cause share prices to decrease in a move that contradicts reality, favored stocks must be accumulated.  The inverse is true when you see statements touting the fact that a price rise will never end.  Understanding how to objectively read the news and take counter intuitive action can be a very profitable skill.