Many stock market participants are becoming frustrated by the power of “news” sound bites and media releases to move today and tomorrow’s stock prices.
How does one improve their odds of making correct stock investment or trading decisions in the face of so many sound bites?
By differentiating between news that can impact the profitability of a company and news that will not. News that has too little, or no impact whatsoever, on the company’s future profitability, can be considered as “noise” when viewed from a stock trader or stock investor viewpoint.
NEWS that affects profitability will kick off a series of events:
- The News emerges
- Traders and Investors take time to measure the impact, if any, to company profitability
- If profits have the potential to increase then demand for the stock will rise
- When demand rises, the good-ole economic paradigm of demand-supply curve kicks in and the stock is deemed to be in demand, thus, worthy of rising and higher stock prices
- Stock price will rise to a point where traders and investors agree it is at it current apogee
- At that most recent price high, traders and investors will determine if it can sustain itself at that level.
Recently Canada demonstrated a perfect model of the above news-noise cycle. As the months rolled by, the marijuana industry in Canada was inundated with news of legislation, government panels, assumptions of regulatory dates, expansions, acquisitions, possible scandals, hiring, plant construction, and on and on. Stock prices rose, fell, rose, moved sideways, went almost-parabolic, fell, and, currently stock prices are largely moving sideways.
NEWS has the power to affect a corporation’s bottom line; NOISE, does not. Noise merely startles, then stock price(s) often quickly return to pre-noise levels.
As with any important decisions, be certain to consult with a qualified professional. Before making any decisions and changes that may affect your finances, consult with your financial planner or other qualified FINANCIAL expert.