Eternal Stupidity

 | Jun 19, 2013 | 2:28 PM EDT  | Comments
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Some things are eternal in this racket, regardless of what the Fed does. One of those eternal things is the stupidity of trading off the headlines before the full story is out.

We saw that exact pattern play out not once, but twice today and it makes me sick to think that people continue to lose money this way. The first mistake? The premarket selling in FedEx (FDX). Here's a stock that's uniquely driven not by the earnings, but by the actual tone and discussion on the call. The headlines are almost always too difficult to decipher. At first glance, when we got the bottom-line number, traders reached for the stock, paying up a buck from last night's close.

Then the guidance dribbles out and we get sellers flying in dumping the stock $2 below where people were buying it just a few minutes ago. Then we get more chatter about how perhaps FedEx is being conservative, which then drives the stock back up, only to have it driven down once again when we discover, again in tiny morsels, that people aren't paying up for express delivery (something that we know has, in the past driven the stock down). Bingo, right back down, this time off $1.

Then I go on "Squawk on the Street" and I suggest that perhaps people should do a little homework because I suspect, even though the stock has run up from the last disappointment, these numbers looked darned good. The stock then rallies 50 cents. I finish talking and the stock loses 50 cents and goes back to where it was at the close last night.

After all that, we actually hear from the company. That's right, throughout this period we only had the release. And the company's the most bullish I have heard them be in a very long time, with a 13% profit gain, certainly more than I expected and a nod to how well the restructuring program is going. At last the stock takes off because it is trading not on innuendo and confusion, but on facts.

That's just the classic example of how to lose money from the get-go simply by trading on incomplete information.

The second bout of insane trading ahead of the facts? The smackdown of Tesla (TSLA) from yesterday's close of $103 to $99 on the story of a huge recall of the Model S that could raise questions about the viability of the whole enterprise.

Oops. It turns out that the recall only involves 1,228 cars that were made last month and it involves a small manufacturing flaw impacting the back seat in the event of a crash. Frankly, when I read about the recall I don't even know if I would bother to get it fixed. It seems that minor, but then I read that they will pick the car up at a place of your convenience, give you a Model S loaner and fix the flaw in a couple of hours. After I read the statement I almost wanted to go buy a Tesla, given that level of customer service. That's a pretty deluxe recall, if I ever heard one.

Sure enough, once more information came out, the market reached the same conclusion and the stock resumed its inexorable climb. The first take, the incomplete take that indicated Tesla might have a fatal flaw, disappeared and with it the decline. All that may have happened is that the humongous short position just got bigger.

Trading before the market opens on incomplete info is a license to lose money, regardless of the Fed's actions. Next time you are tempted to do so, think of FedEx and Tesla. Then maybe you will decide that money's too precious a thing to waste.

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