Bias, a downward bias to thinking, has kept a lot of people out of a lot of stocks and sadly will probably increase after the strong January now behind us.
What do I mean by downward bias? I'm talking about the notion that a slowdown lurks around every corner, that pricing is going to get worse or demand is about to taper or competition to increase or raw materials to jump in cost while users diminish in number. I'm talking about getting it wrong, rather than right, because simply you are used to things going wrong, and you can't shake the prejudice.
Take last night with Action Alerts PLUS charity portfolio holding Facebook (FB) , a not insubstantial company with a well-known story and a management team adept at explaining how the awesome growth can continue despite the law of large numbers.
Facebook's quarter saw a phenomenal 48% increase in advertising off a very large base: $8.6 billion going to $12.7 billion. Given that most of the company's revenues currently rest in the ad space, you have a tremendous growth story; yet if the company can do $9 next year -- totally realistic after what we heard last night -- then you do not have an inexpensive stock at $190.
Now the company is in the midst of a refresh of its core Facebook site that deliberately diminishes the amount of time spent examining your feed by cutting back on annoying viral videos. The change caused a decline in user time spent on the site by a not insubstantial 50 million hours a day. At the same time, the daily average user numbers did not meet the street's 1.41 billion estimate. It came in at 1.4 billion instead.
These two metrics seem to be going the wrong way, resulting in the stock initially being slaughtered on the headlines.
This is not the first and will not be the last time this company puts out some numbers that are off -putting.
Here's where the bias comes in, though. First, Mark Zuckerberg told you to expect the drop-off in hours as a trade-off in user experience. If you look at your feed, you will notice a drop-off in the number of jarring, annoying videos that take you out of your comfortable universe and were eating into your time.
It's just a better time spent with friends. It's as if the company anticipated, correctly, that people will get bored of the engagement because the ads are so weary, no different from when, say, the NFL loads up the tv experience with so many annoying commercials that you just decide enough is enough.
Now, with your bias in hand, you might want to say: "that daily user trend's bad news." But the company point blank told you that it doesn't expect to see any sort of longer-term slowdown in daily active user growth.
More important, Chief Operating Officer Sheryl Sandberg, on the call, explained how this elimination of some of the viral video distractions could be good for business: "because when people spend time viewing more posts, because they are interacting with family and friends and they're not involved in longer posts, we have actually more monetization opportunities" (emphasis mine).
If you track the stock's bizarre gyrations last night, you will realize it was sinking until she made that comment. That's right, it turned around then and there.
Yet, when you read and hear the commentary about the quarter, you never hear that: 1. It was planned and 2. It might be better for the earnings as well as for the users. The latter does produce the former, after all.
This is the downward bias I am talking about -- a presumption that things can only get worse, not better, simply, I think, because things have been so good.
Sometimes I think this is a variation of your mother's admonition that if you keep these good times up, someone has to get hurt.
But sometimes I think people are too conditioned to see things go wrong or business crapping out or an inherent natural force of the law of large numbers that will screw things up.
We are seeing this bias in a whole slew of areas this quarter, not just Facebook's numbers. You see it in cloud adoption, which clearly accelerated this quarter as we can tell from the Microsoft (MSFT) numbers last night. We can see it in mobile technology adoption by the consumer, as we heard from the banks.
We can see, from the Boeing (BA) quarter, that there is a worldwide, accelerating increase in travel. Or from the Schlumberger (SLB) quarter, a huge jump in technological use in oil drilling. Or, in Electronic Arts (EA) and Advanced Micro Devices (AMD) , an accelerating adoption of video games.
Yet, I would tell you that none of these is being reported on, to any great extent. In fact, it's the opposite. The trends are either not being acknowledged, or the skepticism is so great that it obscures anything good.
Yes, sure, there are some slowdowns and some surprising competition where we didn't expect. Cellphone usage seems to have slowed in its rate of adoption. There is more competition in pharma than expected.
But for the most part, I have seen increases and accelerations in an incredible number of business trends, like Facebook, that are obscured by our own negativity.
Unless the bias is stripped or toned down, the big moves will keep getting missed. I almost feel like it is my job to be upbeat. But the reality is I am not being upbeat. I am being empirical and in sync with what's really happening. It's the rest of the commentary that lacks realism, and therefore is devoid of the rigor needed to make the right decisions for your investments.