Monday, May 23, 2005

Google Stock Price Rises 5.7%

The price of a share of Google stock rose 5.7% to $255.45 today. The stand "explanation" "reported" by the media is along the lines of this quote from CNN:

Internet shares rose along with Google (up $13.84 to $255.45, Research), which jumped 5.7 percent on rumors that it could be added to the S&P 500. Should that happen, the stock would benefit from index fund managers having to buy it for their portfolios.

I don't understand how these types of "explanations" are accepted by the media and their customers. If some investor really was surprised that Google was going to be added to the S&P 500 they shouldn't be investing in the market, they should just buy an index fund and leave well enough alone.

If CNN (and the others [MarketWatch Potential index inclusion drives GOOG"], Reuters (via CNBC)... reporting the same story) really believes the increase of 5.7% is due to a rumor that Google could be added to the S&P 500 I don't know what to think of the other reporting they do. Even when much smaller companies are actually announced as new additions to the S&P 500 and that company's addition really was questionable (for say anytime in the next year or two) they don't go up 5% in price. But, if CNN doesn't believe it, wouldn't that be worse? It just seems financial reporting is more concerned with finding some explanation even if that explanation lacks almost any merit.

SmartMoney's "explanation" was much better: "Google (GOOG) shares shot up nearly 6% to the latest all-time high with nary a provocation." But if you don't know anything about investing this seems like SmartMoney don't know what the others are reporting. I don't know whether SmartMoney actually made a good editorial decision or they just wanted to vary the language a bit. I could see one could get tired of repeating the almost daily "rumor" explanation found after whatever stock went up significantly without any rational reason (even if the rumor were true - some rumors would explain price moves, if true, others like the example today have almost no actual chance of having the noted affect even if they were true). In this case you would have to assume that today the chances for Google being added to the S&P 500 greatly increased in liklihood. I would be amazed if the sites using the rumor today have in the past reported Google was to be added to the S&P 500 in 2005 - here is one example.

I have watched this type of "reporting" for years (decades actually) and really don't understand why it is accepted. Why did it go up 5.7% today? I have no idea, but we did include a large stake in Google in our 10 Stocks for 10 Years post a month ago.

It is not all that uncommon that a stock at its all time high price would move dramtically higher ("breakout") but that is not an "explanation" of why Google increased in price today it is just a statement that such an event is not uncommon. Taking advantage of this pattern is part of the investment strategy employed by many successful investors (Livermore, Darvas, O'Neil are examples) and also many investors who fail to achieve great results.

No comments: