The Hindenburg Omen, the "death cross" pattern, the death of the investor! Let's brush aside such blaring, harrowing headlines and the terrifying omens and portents filtering across the news wires. It's time people stop confusing "investing" with "short-term speculation" and instead ponder the importance of being real shareholders.
Technical like tarot
Our current economic situation certainly is scary, but weird theories that don't actually take into account economic and corporate fundamentals are harmful. Consider the buzz about the "Hindenburg Omen," which allegedly can signal a market crash. While it sounds interesting (and seriously, giant dirigibles that burst into flames are definitely in the pants-soiling category of terror), the reality is the Hindenburg Omen's indicators only resulted in such an outcome 25% of the time.
A lot of technical analysis sounds about as "technical" as a tarot card reading. Dilbert creator Scott Adams kind of summed it up in a hilarious Wall Street Journal piece in June: "Technical analysis involves studying graphs of stock movement over time as a way to predict future moves. It's a widely used method on Wall Street, and it has exactly the same scientific validity as pretending you are a witch and forecasting market moves from chicken droppings."
Given the back drop of economic malaise, real investors would be better served focusing on long-term, qualitative analysis of the companies they're considering buying, and trying to avoid stocks of risky companies that really might suffer a Hindenburg-like disaster.
M&A mania
There are plenty of signs investors are still reluctant to shed short-term, speculative thinking, though. Take the recent dramatic bidding war between Dell (Nasdaq: DELL) and Hewlett-Packard (NYSE: HPQ) for 3Par. Maybe that bidding war was more like psychodrama, with an emphasis on psycho.
Here's the reality: Both tech heavyweights kept trying to outbid each other for a company that has lost money every year since it went public. I guess speculators enjoyed their short-term gains from this sideshow, though; 3Par shares now trade at more than $30 per share, compared with around $10 before all this started.
Meanwhile, Dell and Hewlett-Packard have both been in hot water recently. One-quarter of Dell shareholders delivered wilting disapproval when they withheld votes for Michael Dell's re-election as chairman of the board of the company. In addition, let's not forget SEC allegations against the company related to accounting problems and fraud.
Hewlett-Packard hasn't exactly enjoyed positive attention, either, given Mark Hurd's recent ouster, which again suggests that if some rules were bent, others could have been bent, too. Yet despite this scandal that betrayed shareholders and the very recent departure of Hurd, the company embarks on a bidding war. Who's running this thing?
Speculative thinking abounds, of course. Take a look at the recent rollercoaster rides of RadioShack (NYSE: RSH) and Saks. A long-term investor would view each with scrutiny, given the competitive and economic challenges these retailers face. Yet both have recently enjoyed euphoric interest (and soaring stock prices) on takeover rumors that may never come to pass. That's highly speculative.
Traders and slasher management
Speculative trading by its very nature ignores important elements of long-term investing: quality of management, for example.
On Wednesday, I covered a report from the Institute for Policy Studies that revealed that since the "Great Recession" began, companies responsible for the most worker layoffs tended to have the most richly rewarded CEOs. The CEOs of Walt Disney (NYSE: DIS), IBM (NYSE: IBM), Ford (NYSE: F), and United Technologies (NYSE: UTX) all made the report's dubious "10 Highest-Paid CEO Layoff Leaders" list.
There's a good argument that instead of being manic traders snapping up shares of companies that announce layoffs, folks who have the courage and insight to be true long-term investors (shareholders, or owners) should seriously consider whether such managements did something wrong instead of assuming they're doing something right in "boosting (short-term) profit."
At some point, mass layoffs look an awful lot like a tricky move to reassure speculative traders and Wall Street analysts on short-term profitability. Given obvious issues in layoff-happy environments, though, such as flagging employee morale, inadvertently losing talent, and the sense that top managements at such firms are only out for themselves, true long-term shareholders should carefully weigh such events.
Own it, darn it!
These are indeed tough times, but more conversions to true long-term shareholding would improve the quality of our marketplace. Real long-term shareholding implies weighing true financial strength and business outlooks, management quality and integrity, and strong corporate governance principles. Real shareholders care what their companies do, and invest according to business strength, not according to omens, rumors, hunches, the herd, and other nonsense.
If more people ditch short-term speculating and diligently search for the most stable, well-run companies to invest in for the long term, it would pressure better business practices in general. It's time to stop trading and start investing.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.
