It was 11:31 on October 20th and I was blown away. Yesterday we were down over 200 points in the DOW and the Bears jump out of every corner they've been hiding in and tell us that the world is going to burn to the ground.
The same news stories get trotted out over & over in an attempt to level the banks to the ground. TV analysts, uninformed news casters, and nay-sayers blast negative press via every avenue they can think of to get the market to fall off a cliff.
At the end of Oct. 19th, the DOW finished down 166 or so. The day looked rough, but the market closed up 60 points above its lows with earnings from the likes of Wells Fargo, Westerm Digital, CREE, and others due out after the bell or the next morning.
All that really matters in the price of a stock (eventually) is the earnings. It's a simple math problem. Figure out what the "market" will pay for a particular stock, multiply by the full year EPS and anyone with a calculator can figure out a price target for a stock.
While there are an endless number of macro news stories, rumors, economic readings that can and will move a stock...they are ultimately irrelevant. In fact, almost (and I stress almost as the financial sector, especially the banks, have been obliterated thanks to endless negative press) everything BUT earnings is irrelevant. As a trader, or rather, a value investor who is willing to participate in the markets intraday and refuses to accept a terrible price for what I want to own; the wild swings (especially at the open) give me a chance to buy good merchandise (stocks & options) at great prices...if you're watching.
So, while I think that the wild oscillations of the market are quite overblown over the short term...I would never wish them away for anything.
Take NetFlix for instance. The stock ran up to $127, only to pull back to $98 because earnings were "bad". Well, I was on that conference call when they reported in July and we doubled down on our short put spread trade...should have added calls to it, and the stock rallied from $98 to the current level of $171. The endless negative stories on the stock were vastly overblown & the stock is up near 100% from that recent low. If you didn't do your homework on the stock, you probably were one of the sellers when the stock broke $100 to the downside & you are still kicking yourself.
How about Salesforce.com. The company reported and the stock went from $123.77 to $97.92. Again, the cloud had burst, all these stocks were going to zero, and you were supposed to hit the sell button (according to the "talking heads"). The stock is now back up above $110 and you could be up over 10% from those recent lows...or at least sold 85/75 put spreads when the stock broke $100 to take advantage of the elevated volatility in the stock.
I can go on. The Wells Fargo Conference Call was terrific because it told us that the formula is really 8 to 1; meaning that for every $8 Billion in mortgages someone tries to make a bank take back, only $1 Billion in actual real losses results. This told you that Bank of America, Citigroup, and all sorts of other banks had a MUCH lower liability than the news media has stated.
Bottom line, there is no substitute for doing the homework. Knowing your stocks, listening to the conference calls, and watching the markets often means that you are much less likely to fall prey to the endless negative news that executive producers believes is why people tune in to watch one trainwreck after another.
If you want to watch endless trainwrecks, watch the first few weeks of American Idol or go pick up an issue of US Weekly. There should be plenty of "news" that no one needs to know that "everyone" will be talking about the next day at work. But as for stocks, ultimately, the only thing that matters is what they earn & what multiple the market will let them trade with.
Anyone remember Goldman Sachs at $133 when the Government was going to erase them? Probably not because you never went long down there and missed it. Well, consider Bank of America your 2nd shot at glory...but keep in mind, time-frame is everything ('cause this story wont turn around overnight). The book value of the stock is closer to $13 and they have about $70/share of cash on hand and do business with about 50% of America's Households. I'm not saying that I'll be right tomorrow, or next week. But eventually, earnings are all that matter and BAC will have them.