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“Explaining” Random Variation

Summary:
Apple analysts are of no value to investors When I was a reporter covering Cisco Systems Inc. in the late 1990s, it was my job to talk to several analysts a day to find out the latest bit of news that might move the networking company’s share price. If the stock moved more than 2% on any uptick in volume, I had to write a story explaining why. After dealing with that every day for about three years, I realized the overwhelming majority of analysts had no better clue than I did about what was moving Cisco’s stock. Most investors know this, but if you don’t remember this lesson. The “explanations” you hear from media often are just as useless as horoscopes. A bunch of meaningless words presented in the hopes you don’t realize they are empty words. The talking heads (and writers)

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Apple analysts are of no value to investors

When I was a reporter covering Cisco Systems Inc. in the late 1990s, it was my job to talk to several analysts a day to find out the latest bit of news that might move the networking company’s share price.

If the stock moved more than 2% on any uptick in volume, I had to write a story explaining why. After dealing with that every day for about three years, I realized the overwhelming majority of analysts had no better clue than I did about what was moving Cisco’s stock.

Most investors know this, but if you don’t remember this lesson. The “explanations” you hear from media often are just as useless as horoscopes. A bunch of meaningless words presented in the hopes you don’t realize they are empty words.

The talking heads (and writers) need to say something. It would be much more useful if they took the time to do some research and put in some thought but they seem to be driven by the need to fill space instead of the need to inform.

It is also a huge waste of time, explaining random variation.

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