I. Define Propaganda and Why It Matters

II. Outline Steps for Decoding

III. Present Emerging Investment Strategy

Part I: What Is the Propaganda and Why Does It Matter?

“…transfer property from the hands of many to the pockets of few.” from Devil Take the Hindmost: A History of Financial Speculation by Edward Chancellor

What Is The Propaganda

Reported Earnings Are Reliable

• Quarterly Earnings Conference Calls Provide Adequate Information
• Earnings are a reliable measure of profitability

Earnings Growth Drives Valuation

• Price-to-earnings and other simple valuation techniques are accurate
• Market cares about this quarter’s earnings more than anything else.

Wall Street Wants To Help Investors Make $

• Research aims to help investors make more informed decisions
• Brokerage services help create wealth for clients
• Spitzer Settlement has been effective
• Wall Street research coverage is not-conflicted

Define the Audience for the Propaganda

Speculator

“If you are a speculator, your decision to buy or sell is based on what you believe about the near-term direction of price.” – Ben Graham

“…speculation is the activity of forecasting the psychology of the market.” – John Maynard Keynes

Vs.

Investor

“If you are an investor, your decision to buy and sell is based on the underlying economics of the stock you own.” – Ben Graham

“Investing is an activity of forecasting the yield on assets over the life of the asset…” – John Maynard Keynes

Jump On the Bandwagon

Proof That There Is Lots of Speculation

Shorter Holding Periods for Stocks

• Until mid-1960’s average holding period was 7 years.
• Today, average holding period is less than 1 year and annual portfolio turnover is more than 100%.

Major Reactions to Quarterly Earnings

• Stock prices make large moves in response to earnings surprises.
• Suggests that long-term cash flows are less important.

Amateur Individual Investors – growth market

• Schwab, TD Waterhouse, Scottrade
• Day trading

Media – growth market

• TV: Mad Money, CNBC Squawk Box and Squawk on the Street.
• Print: Wall Street Journal, Investors Business Daily, local newspapers.
• Web: Motley Fool, The Street.Com, CBS MarketWatch

See full PDF below.