Why ask Why
8-3-07: The importance of understanding why companies’ makes certain decision is as important as understanding its business model. Let’s not forget the single most important fact of capitalism; businesses are in it for the money. They exist not to make the world a better place, but to line their pockets. Executives are not there to enrich your lives. Their goal is to take care of number one. They will say whatever Wall Street wants to hear to bring their stock prices up. The majority of information that comes from corporate officials is usually pure BS. No where is the BS greater than on Wall Street, where it all starts.
As a society, we rely heavily on the tradition media for information. We often consume press releases without questioning the real motivation behind the headlines. Historically this has lead to trouble as the individual investors will tend to enter the market at the least optimal time; usually right before the market goes through a period of correction. Take the case of Enron. We all know how it ended. In our view, the fundamental reason Enron was able deceive the public so long was that people failed to ask questions.
This brings us to the recent market volatility where the market is up 150 point one day and drop 200 point the next. These are scary times and we should be questioning everything that we hear from the media. The news media is not your friend. Although they claim the reason for their existence is to inform the public, they also have their own agenda. As companies press releases are filtered information so are the news that comes from the major networks.
What is the point of this post? When a company report 600 percent jump in profit, be skeptical and ask how it was achieved. When other are bailing on a stock, ask if that is an opportunity to enter. Don’t jump in just because you are afraid to miss the boat or dump the stock because the overall market is in decline. Do not be afraid to deviate from the herd when it comes to investing. We all know what happens to the herd at the end. Going your own way is sometimes the only way to go. We encourage people to think independently. Here are some questions we are currently pondering:
1. Why is the market up so much?
2. Why is there so much fear with subprime?
3. Why is President issuing a statement reassuring the public after the market dropped 300 point?
4. Why is the media hyping the world economic expansion?
5. Why is price of oil so high when there is no real threat of disruption?
5. Will the collapse in the mortgage industry lead to high unemployment rate?
If you know the answer to these questions beside what has been presented to you from the traditional media outlets, please let us know and let's try to figure this market out together. Good Luck.
Comments
" In the article I wrote for Fortune 16 months ago, I warned that “a gently declining dollar would not provide the answer.” And so far it hasn’t. Yet policymakers continue to hope for a “soft landing,” meanwhile counseling other countries to stimulate (read “inflate”) their economies and Americans to save more. In my view these admonitions miss the mark: There are deep-rooted structural problems that will cause America to continue to run a huge current-account deficit unless trade policies either change materially or the dollar declines by a degree that could prove unsettling to financial markets. "
-Warren Buffet
Posted by: dazraf | August 3, 2007 12:34 PM
Made a nice profit on KBR thanks to you guys!! It is now back down around 30. Are you adding to your position assuming you sold at 36? Any change in thought regarding HAL?
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Glad to hear you made some profits on KBR. We are hoping for sub $30 to buy more. The stock has gone up at rapid pace so it is natural to see some pull back given the negative market sentiments. Our position remains the same for HAL. We are looking to buy more HAL at these prices (low $30s). Good Luck.
-ibooyah
Posted by: dazraf | August 11, 2007 07:42 PM