I generally try to avoid the Yahoo! Finance message boards. The activity tends to lean toward frenetically watching every last blip of the ticker tape, and analysis often devolves into "he who punks best is right."
But as I was considering the random movement of one of my portfolio stocks, I was reminded of my favorite phrase from those message boards -- "somebody knows something." It's a message that seems to inevitably pop up when a stock moves and there's no crystal clear explanation for the move (which isn't particularly rare).
A quick search on the message boards reveals numerous instances of the "somebody knows something" chorus over just the past few days. One poster addressed the drop in Las Vegas Sands' (NYSE: LVS) stock and what it might mean going into earnings by saying: "Oh, and most likely going much lower into earnings - somebody OBVIOUSLY knows something and has played the fools that are attracted to this type of stock as just exactly what they are … "
Trying to read the tea leaves on Cliffs Natural Resources (NYSE: CLF) and the 2.7% dip in its stock yesterday, another poster writes: "Something is going on behind the scenes. Someone knows something about the overall market that is not public yet. Whatever it is, it is not good, so stay out the way."
While the phrase may seem funny, its implications are less so. The suggestion is that the directional move of the stock means that something good (or bad) is happening that, in turn, should impact your investment decision. And though investors who use technical analysis may not utter such a phrase, they're doing something very similar since they're taking their cues from the stock's movements.
But why is it really moving?
With the second quarter now in the books, we're soon going to be inundated with a flood of earnings announcements that will include numbers from both Las Vegas Sands and Cliffs.
Analysts expect Sands will put up $0.06 in the second quarter versus $0.01 last year, while Cliffs may see $2.22 per share against $0.36 last year. Is it possible that somebody lurking in the shadows somewhere knows something that the rest of the market doesn't, and this mysterious sleuth is causing these two stocks to sell off? Sure, and it's also possible to get eaten by a shark, but not everything that's possible is all that likely.
What's far more likely is that these stocks are simply being pushed around by the market as a whole as well as getting extra nudges here and there from mutual funds and hedge funds that decided for any one of a wide variety of reasons to buy or sell that particular stock. In other words, the day-to-day movements are largely meaningless.
Of course, it could also be something much sillier.
The New York Times reported yesterday that U.K.-based oil futures broker Steven Noel Perkins apparently single-handedly engineered a jump in the price of oil a year ago by placing $520 million in unauthorized trades, and he has no idea why:
'Mr. Perkins's explanation for his trading on 29 and 30 June is that he was drunk,' the [Financial Services Authority] said. 'He claims to have limited recollection of events on Monday and claims to have been in an alcohol-induced blackout at the time he traded.'
There was big buying going on in the oil market during those days, but anyone that followed it because they thought "somebody knew something" would have been following the drunken flailings of a rogue trader. So much for somebody knowing something, eh?
Play the market, don't let it play you
Since late April, the S&P 500 has shed 15%. Between that drop and the 4% skid that we've seen in just the past two days, there's plenty of room for investors to be worrying about who knows what and what this slumping market is trying to say.
Rather than get caught up in all that noise, now is a perfect time for Foolish investors to reground themselves in worthwhile investing wisdom. In his 1977 letter to Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) shareholders, Warren Buffett outlined the company's investing focus as follows:
We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety. We want the business to be (1) one that we can understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) available at a very attractive price.
Simple enough, right? Even better, he follows that up by addressing how he views short-term price movements in the stock market:
We ordinarily make no attempt to buy equities for anticipated favorable stock price behavior in the short term. In fact, if their business experience continues to satisfy us, we welcome lower market prices of stocks we own as an opportunity to acquire even more of a good thing at a better price.
So here's the deal. Right now, investors can jump at the wiggles of the market, assuming like Chicken Little that the sky is falling. Or they can recognize that in the midst of all of this there are very high-quality businesses selling at very attractive prices. Verizon (NYSE: VZ), for instance, which looks like it's going to get its hands on Apple's iPhone, is trading at a mere 12 times forward earnings and is kicking out an impressive 6.6% dividend.
With 75% of the U.S. population living within three miles of a CVS Caremark (NYSE: CVS) retail location, who do you think is going to be filling all those new prescriptions as millions more Americans end up covered under the new health-care law? Yet that stock is selling for less than 11 times forward earnings. And amid all the mess in the Gulf of Mexico, it seems that ExxonMobil (NYSE: XOM) is being held up as what a major oil company should be. My fellow Fool Joe Magyer thinks Exxon could be the greatest company in the history of the world, yet if its stock falls much lower you'll be able to pick it up with a single-digit multiple.
What do you think about all of this? Are you hanging on every twist and turn of the market or are you looking for the strong companies that you can buy for cheap right now? Head down to the comments section and share your thoughts.
Buffett has a clear plan when it comes to making investments, but he can only wish that he could buy these great stocks.
