Apple, for example, is riding a wave of sentiment that they can do no wrong.
Let's face it; despite "antennagate" they have done a lot right.
A doctor friend of mine frequently reminds me about the wonder and brilliance of Steve Jobs and Apple Computer. To a large degree I agree that this company is executing well. However, one should be very careful to assume that a company's share prices are immune from downdrafts, even if their company is in high demand. We are not negative on Apple, but just want to illustrate how strongly sentiment can play into investment decisions. Anyone remember when Cisco was touted as the first trillion dollar company? Don't think the good companies can't trade lower? They can.
Citigroup is a company currently shrouded in negative sentiment because of its obvious stumbles over the last several years. The naysayers and negative analysts have factual reasons why they think this asset has problems. Still, one cannot discount the overwhelming dour mood about banks in general which has impacted stock prices and analyst perspectives. Emotions matter, but emotion may constrain some from looking at an asset like Citigroup with a more balanced perspective.
General Electric , which appears to be positioning itself well for the next 10 years of global growth, has a huge overhang on it's stock price because of uncertainties related to it’s financial services unit. While these concerns are certainly justified, one must determine whether sentiment is excessively gloomy. Our take is that this negative sentiment is probably overdone. This is a diversified global company that is not afraid to take action to position for the new global economy and one day (who knows when), credit conditions will stabilize. (*Editor's Note: GE is the parent company of CNBC and NBC Universal)
Headlines vanish in a click.
The entire mood and tone can change based on what’s in vogue today. Websites will scream panic then euphoria, seesawing from week to week. Puncture all this hot air with a recognition that facts and emotion together dictate market movement. Your response should all be assessed in the context of your personal circumstances and goals.
There's a new formula (actually a forgotten formula) that investors should integrate into their decision making process. Facts plus emotion, combined with your investment philosophy/goals, should be the foundation of your thinking and decision-making process. Recognize and accept the irrationality that exists.