GOOD NEWS OR BAD NEWS?
January 22nd 2009 10:33
First, a warning: almost every story about the world economy that I read these days talks about a sluggish growth, a difficult year ahead or another round of financial crisis.
Even the guy I had the fortune of talking to last night who used to head the treasury department of the only bank in the Philippines that I know of that claimed they had increased earnings in 2008 said you can forget about world economic recovery this year.
One, therefore, can expect a lot of sad stories and bad news in the near term and all of those will be backed by figures that show how gloomy life would be in the financial world - at least in the next several months. And, I suppose, anybody who gives an opposing opinion would see a lot of batted eye lashes if not convulsively violent reactions.
Those reactions of course would be justified. Hell, look around and you can’t miss to see a sign that says they are right.
But considering that all the reports and negative stories that come out are based on a set of expectations that were made in comparison to previous performances, does it really follow that a performance is bad because it did not meet the expectations based on past achievements (even with present conditions factored in) - though that performance did not really mean a loss to the performer?
To illustrate, let us say that company A had a profit of $250-M in 2007 but only made $40-M profit in 2008. That would be a drop of a whooping 84% in profit! Is that a bad news or a good news? Now, consider the financial crisis that hit the world economy in 2008, does the story still convey a bad news or a good news? Again, let us say that all competitors of company A in the same industry reported losses of any amount, would you continue to view the story of company A’s performance in 2008 bad news or good news?
Well, I guess I am only writing about this because I feel that it is all too easy to believe a negative story when everybody is in a negative mood, and conversely, a positive story when everybody is in a positive mood. A thing attributed to “herd mentality.”
And why is a market newbie making another case that tends to buck everyone else’s views?
Certainly not to lead anybody astray, I just think a newbie has to learn how to discern what is going on around him if he were to succeed in his trades.
Or maybe the newbie just wanted to ask.
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