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The market is down and the headlines are blaming Cisco Systems (CSCO), in part because they reported tepid earnings and somber growth projections. This once again underscores the fact that stock prices are always determined at the margins. Most folks could care less, and this is reflected by the big silent yawn of the majority of investors.Cisco is not the bell-weather it has been in the past. Some of its business is down because there are more alternatives from competitors, "the cloud" keeps growing, and also many products have become commodities.
There are many other companies I would consider better measures of how the economy is doing.
These include Johnson and Johnson (JNJ) diversified into consumer care products, health care, pharmaceuticals and extensively diversified globally; General Electric (GE) a conglomerate with major diversification, having divisions in aerospace, water, health care, power generation, and entertainment, and Procter and Gamble (PG), having similar characteristics to JNJ and GE.
Cisco's product line is far more sensitive to obsolescence than that of the other companies I have mentioned. Compare the shelf life of a generator, or paper products, or household goods with a warehouse full of inventory in leading edge technology that depreciates rapidly.
Every time the market makes a move we get a raging headline. I was taken aback by one of our own headlines recently that claimed Bill Gates was slashing his interest in Microsoft Inc. (MSFT) stock, when in fact he was only selling 2 million of his 619 million shares, less than 0.03%. Somehow we have to rationalize everything -- even if we have to make it up -- ridiculous!
If there was no news whatsoever for a month, the stock market would move up and down anyway and Cisco would not even be a drop in the ocean. Certainly there are stories that impact the market greatly, but sometimes there are not.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value™ and Serious Money. Disclosure: He owns shares and/or options of GE, JNJ, and MSFT.
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Reader Comments (Page 1 of 1)
11-11-2010 @ 5:16PM
william lindblad said...
The markets have been moving on rumor since the days of Jay Gould. Look at the commodity market and you can quickly ascertain that there are (big) players entering areas in which they don't have the expertise. The same can be said for the currency arena. These days the place is crazy - and dangerous. There is entirely too much loose money - expecially in the short sense.
Using your Cicso example - it is similar to your "challenging" example. When the financial world is expecting "rosy", than rosy it better be. Telling investors the truth is becoming more in the realm of the spin doctors and plays in semantics. Perhaps they all should adapt versions of "Greenspeak" in which the answer is too obscure to be fully understood. That's a good option. Tell everyone something that can be interpreted in at least three different ways - and let them figure it out.
This brings to mind the famous Lincoln quote on fooling the people - the one with sometimes and all of the time.
Abe NEVER said it, but he NEVER denied it either!
There remains too much speculation and a great deal of it is in the hands of people that really should not be doing such. It seems that this nonsense has moved from mortgages to currencies and commodity, and I view this as a witch's brew that will bring further problems.
But what the hell, what does a trained monkey know!