Course 203: Understanding the News
"Noise" Versus News
In this course
1 Introduction
2 Stock Indexes
3 The Dow Jones Industrial Average
4 The S&P 500
5 The Nasdaq Composite
6 "Noise" Versus News
7 Negative Earnings Surprises
8 Analyst Upgrades/Downgrades
9 Newsworthy Events
10 The Bottom Line

Anyone interested in keeping up with current business events has plenty of opportunity. Walk into any newsstand, and you'll see all kinds of newspapers and magazine titles dedicated to the business world. Cable television offers several business news channels. And the Internet provides countless business and financial Web sites.

Oftentimes, events in the news cause stock prices to move both up and down, sometimes dramatically. Sometimes the market's reaction to the headlines is warranted; many other times, it's not. For an investor, the real challenge is deciphering all of the headlines and stories to determine what is really relevant for your stocks.

Here at Morningstar, we practice the discipline of scouting out great companies with long-term competitive advantages that we expect will create shareholder value for the foreseeable future. Then we wait until their stocks become cheap before investing in them for the long haul. In keeping a watchful eye out for solid investment opportunities, we constantly monitor and evaluate the ever-changing business environment. As we digest the events that affect any given company, we continually ask ourselves, "Does this information affect the long-term competitive advantages and resulting cash flow of this company? Does it change the stock's long-term investing prospects?"

This is key to understanding the investment process. Periodically, news will break that does not affect a company's long-term competitive advantages, but its stock price will fall anyway. This may lead to a buying opportunity. Remember, "Mr. Market" tends to be quite temperamental, and not always rightfully so.

Next: Negative Earnings Surprises >>


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