Book summary “Use the News”: summary

Introduction

You face an overwhelming flood of financial data every day. Cable news, internet forums, and social media bombard you with conflicting reports, instant commentary, and urgent trading tips. This constant noise makes it difficult to separate vital market signals from worthless distractions.

Maria Bartiromo argues that you can level the playing field against institutional investors by using free online data, recognizing market noise, and applying common sense. You no longer need Wall Street insiders to achieve financial independence.

The book shows you how to filter unconventional news, decode corporate statements, and build a personal investment framework.

• How do you find reliable information online?
• Which market triggers require your immediate attention?
• How do you read financial statements like a professional?

1. The Information Explosion and Your Independence

The information explosion gives individual investors free access to critical data, removing professional advantages and demanding personal responsibility.

Data that used to require expensive subscriptions or phone calls to traders is now available online for free. This allows individuals to research, evaluate, and track their investments just like institutional managers do. Over two decades, equity ownership grew significantly due to a record-breaking bull market and an abundance of accessible investing information available via magazines, television, and more than 352,000 internet web pages.

Leveling the Playing Field

Individual investors have a major advantage over institutional fund managers because they are not forced to chase short-term quarterly performance. Mutual fund managers are evaluated every three months against the S&P 500 Index, forcing them to buy what is currently rising and avoid stocks facing short-term pressure. Individuals can take a long-term view, holding temporarily depressed stocks for a year or five years until the value is realized.

People already know how to research and evaluate investments because they use the exact same skills when buying everyday consumer durable goods. According to strategist Arthur R. Hogan III, researching a stock is just like researching a car, computer, or refrigerator by reading up on it and talking to peers. Consumers naturally separate promotional advertising noise from meaningful metrics like fuel efficiency or garage fit.

A taxi driver in Washington with dreadlocks asked Maria Bartiromo if oil stocks were going up or down, and a parking valet in Lake Tahoe intelligently discussed upcoming unemployment numbers and the tight labor market.

The Long-Term Advantage

With the independence gained from online access comes the personal responsibility to monitor your investments and understand where your money is allocated. Handing money off to an advisor or fund manager without checking quarterly statements or mutual fund holdings is irresponsible. You should review quarterly reports to see if a fund has concentrated exposure in companies like Microsoft or Wal-Mart.

Professional financial managers still provide valuable services such as planning, risk assessment, and tax guidance. Professionals help articulate financial goals, determine risk tolerance, address tax concerns, and sort through thousands of mutual funds. Because the market is competitive, you should hold your managers to high standards among the more than 6,000 different mutual funds offered and over 20 million Americans relying on a pool of about a half-million investment professionals.

Analyst recommendations and research should be continuously scrutinized using public tracking tools rather than accepted blindly. Websites like Bulldog Research and Validea track analyst upgrades, downgrades, and past recommendations against actual stock performance. Star analysts with exclusive insights have become rare, and excessive information often clouds judgment.

• Check Morningstar or Lipper ratings online to compare fund returns against the S&P index.
• Review quarterly mutual fund reports to check underlying stock allocations.
• Scrutinize company savings reports and 401(k) statements.
• Check analyst track records on websites like Bulldog Research and Validea.
• Verify if an analyst's past calls actually made money before acting on a recommendation.

2. Filtering Unconventional and Online News

Unconventional sources like message boards and chat rooms require deep skepticism to avoid scams, pump-and-dump schemes, and market noise.

Information from government or corporate sources usually comes with a clear bias. Anonymous online posters may be shorting a stock or manipulating its price while pretending to be insiders. Arthur Levitt, outgoing SEC chair, described chat room material as garbage comparable to bathroom graffiti. Treating such tips without deep skepticism exposes you to noise and fraud.

Message Boards and Hidden Agendas

Despite the abundance of noise, message boards can provide a valuable 360-degree view by exposing you to contrarian opinions that challenge your assumptions. Paul Meeks of Merrill Lynch notes that disgruntled employees or short-sellers posting on boards can reveal real product issues if trends are overwhelmingly consistent.

Anonymity on the Internet enables bad actors to execute pump-and-dump schemes by artificially inflating penny stocks through false electronic postings. Fifteen-year-old Jonathan Lebed used his bedroom computer to buy obscure penny stocks, hype them via false messages, and reap nearly $800,000 in gains over six months. He bought 17 to 46 percent of a day's volume of a thinly traded stock.

Financial websites and newsletters frequently deliver opinions rather than facts, requiring you to evaluate the author's underlying agenda and institutional backing. Content is commoditized, and small newsletters lack the billions in buying power needed to move markets. Art Cashin has been on the floor as lead broker for Paine Webber for 40 years.

• Ask yourself who the person is answering to and what the source of their opinions is.
• Determine if the person is trading on their own stock picks, pushing their firm's stock, or promoting a hedge fund portfolio.
• Scrutinize the source by verifying if statements are based on fact or opinion and checking if facts can be verified elsewhere.

Whisper Numbers and Hoaxes

Unofficial earnings estimates known as whisper numbers can create market distortions when they override official consensus figures. In January 2001, Yahoo consensus revenue was $315 million, but the whisper number was $296 million. The company reported $294 million after analyst Holly Becker warned clients.

Instantaneous news delivery forces media outlets to publish press releases without proper verification, causing massive short-term market swings based on hoaxes. On August 25, 2000, a fake news release stated Emulex CEO had resigned. The stock dropped 60 percent within an hour before the hoax was exposed and trading resumed, closing 6.5 percent down by the end of the day.

Everyday personal observations and consumer trends can serve as powerful unconventional starting points for discovering high-performing investments before Wall Street notices. Peter Lynch popularized the buy what you know strategy, finding winning stocks through everyday shopping habits rather than institutional computer models. Fuel Cell alternative energy stock saw a 466 percent increase in 2000.

• Identify products you use frequently and notice where you spend your time, energy, and money.
• Use your professional background or daily life as a jumping-off point to research related companies.
• Treat unconventional tidbits as a first blip on your radar screen rather than an immediate trigger to buy or sell.

3. Recognizing Noise and Market Triggers

Market noise causes stocks to swing wildly without fundamental changes, while specific events like IPOs and confession periods test your patience.

Market noise consists of events that cause stocks to swing uncharacteristically by soaring and plunging for no good business reason. Most noise ends up where it started, driven largely by momentum and sentiment rather than underlying changes to company fundamentals.

During the 1997 Asian economic meltdown and the 1998 collapse of Long-Term Capital Management, many investors panicked and sold stocks due to the noise and emotion. They missed out on subsequent consumer deflationary booms and Federal Reserve rate cuts.

Noisemakers and Market Sentiment

Dramatic headlines and news events often accelerate existing money flows rather than causing fundamental market shifts on their own. In a sensitive market with active capital movement, a headline acts as a trigger that accelerates buying or selling trends. When market liquidity has no significant trend, headlines create temporary noise rather than lasting market direction.

Halliburton stock slumped when its CEO Richard Cheney was named as George W. Bush's running mate. This was a total headline grabber that meant nothing because his second-in-command was already running the company.

Milestone round numbers for major market indexes create psychological anxiety or euphoria while often misrepresenting the actual health of most underlying stocks. Index milestones reflect a price-weighted average rather than the entire market. When the Dow Jones Industrial Average reached 11,000, most of the industrial stocks making up the average were actually trading down.

Initial Public Offerings are heavily weighted toward institutional investors, making it nearly impossible for ordinary retail investors to get in at the bottom of hot deals.

The Rigged Game of IPOs

Underwriters allocate hot IPO shares to institutional investors, hedge funds, mutual funds, and large clients who provide the biggest commissions. Individual investors are left buying heavily hyped stocks at inflated opening prices that quickly drop. Palm priced its IPO at $38 but opened at $145, before heading south and trading down to a low of $19.88 within its first month.

• Check for the eyebrow factor where potential investors read the business description and say wow this is cool.
• Ensure the company operates in a sector with strong and unsaturated growth potential.
• Verify that the IPO has a strong underwriter from one of Wall Street's big names.

4. Building Your Investment Framework

A personalized investment calendar, fundamental analysis checklists, and top-down sector views help you organize information and eliminate emotion.

Without a top-down framework or investment philosophy to act as a radar screen, you get overwhelmed by trying to analyze every stock or piece of media coverage. A proper framework helps distinguish potential red flags from irrelevant information and tells you what sectors or companies to ignore completely. Robert A. Loest, a senior portfolio manager, noted that individual investors often fail to set rules of the game, sometimes even alphabetizing their portfolios to look at every stock globally, whereas focused value creators only look at sectors driving down critical limited resource costs.

• Decide what you are going to look at from a top-down fashion and what you are going to ignore.
• Group stocks into investment sectors rather than looking at every single stock individually.
• Ask whether an industry sector is growing rapidly rather than focusing solely on individual company growth claims.

The Investment Calendar

Creating a personalized investment calendar helps investors organize information, anticipate market-moving events, and eliminate emotional decision-making. You should build a custom calendar divided into specific dates for events and economic reports, shaded time spans for known general market trends, and margin notes for strategic thoughts or valuation reminders. It should be updated weekly or biweekly and focus on owned stocks and top sector competitors.

• Mark specific events and economic indicator reports on the exact days they occur.
• Shade in general market trends over the known weeks they tend to occur.
• Scribble notes and reminders regarding management changes or valuation in the margins.

Earnings reports from bellwether stocks affect entire sectors and markets. Company conference calls, analyst meetings, and trade shows provide visibility into past performance, strategic direction, and upcoming product cycles that directly influence stock prices. In 2000, 3M announced at an analyst meeting that it would derive 50 percent of its revenue from telecommunications technology over five years, sparking a significant stock rally.

• Track quarterly earnings announcements of your stock and bellwether stocks in Dow and Nasdaq sectors.
• List company conference calls on your calendar as an option to review past performance and future expectations.
• Monitor analyst meetings and industry conferences for unexpected management disclosures or strategic shifts.

Fundamental Checklists

Investors must perform fundamental analysis using a comprehensive checklist of company and industry metrics rather than relying solely on P/E ratios. While the P/E ratio is crucial, it is only a single data point. You must examine revenue and earnings growth, debt, management experience, business model strength, and competitive sector forces.

• Find out how the company makes its money and how its most important business area is performing.
• Check predictions for revenue and earnings growth, debt, and expenses.
• Examine management experience and future success potential.
• Review stock and competitor charts to gauge highs, lows, and sector momentum.
• Confirm findings against hard facts of money flows.
• Create an industry sector checklist outlining market forces, top players, strengths, weaknesses, and growth.

A company's management accounts for only a minority of its success, making it vital to analyze broader environmental and macroeconomic drivers.

Focusing solely on a company's product line or management captures only about 30 percent of success, while the remaining 70 percent depends on the competitive environment, customers, economy, and interest rates. Dennis McKechnie of PIMCO's Global Innovation Fund views their work as 85 percent fundamental and 15 percent valuation, achieving a 40 percent gain in 2000 while the Nasdaq lost 40 percent.

• Boil down every investment idea to the four or five things about a business that really matter.
• Pursue or dismiss information relative to the key drivers of the company's business.

5. Reading Financial Statements and Expectations

To evaluate a company's true financial health beyond marketing hype, you must rely on three essential financial statements found in SEC filings and annual reports. The income statement shows profitability and profit margins over time. The balance sheet gives a snapshot of assets, liabilities, and debt at a specific moment. The cash flow statement tracks the actual movement of money coming in and going out of daily operations.

True financial evaluation relies on the income statement, balance sheet, and cash flow statement, alongside tracking expectations and money flows.

Wal-Mart's 2000 financial reports revealed cash levels of $2.05 billion and detailed accounts receivable periods. Wal-Mart's total liabilities equaled $44.5 billion, comprising $28.9 billion in current liabilities, $12.5 billion in long-term debt, and $3.1 billion in capital leases. Wal-Mart paid a $9 billion premium for a British supermarket chain's brand name, recording it as goodwill because they paid $15 billion for assets with a book value of $6 billion.

You can inspect these mandatory disclosures to guide your fundamental research:

• Review the annual report for management tone.
• Inspect the annual 10-K statement for insider holdings and detailed management biographies.
• Examine quarterly 10-Q statements to track performance changes throughout the year.

Expectations and Money Flows

The market value of an equity is driven not just by absolute earnings, but by how results compare against future growth expectations set by analysts and investors. On August 3, 2000, Motorola suppliers were told the company would ship 80 to 85 million handsets that year, lower than a passing comment made six months earlier mentioning 100 million units. The stock opened down more than 10 percent.

Money flows serve as a primary leading indicator for future stock prices, tracking the supply of available capital against the pool of available shares. Charles Biderman of TrimTabs used money flow data, surging margin debt, and heavy insider selling in late 1999 to successfully predict the end of the five-year bull market. Total mutual fund inflows reached $227 billion for the record year 1997.

You can track institutional and retail conviction by monitoring volume momentum, liquidity trends, and regulatory changes.

Investors borrowed $100 billion via margin debt between October and March. Birinyi and Associates uses a numerical rating system from one to five to evaluate stock accumulation and selling pressures based on flows and prices.

You should monitor institutional accumulation and sector flows using specific resources:

• Check TrimTabs.com weekly liquidity updates and mutual fund flow reports.
• Review AMG Data Services news reports for flow data.
• Consult Investment Company Institute listings for monthly mutual fund assets and flows.
• Track insider selling trends on www.insidertrader.com.
• Check www.unlockdates.com to find out when senior management share lock-up windows open.

10 Key Ideas

1. The information explosion gives individual investors free access to critical data, removing professional advantages and demanding personal responsibility.
2. Unconventional sources like message boards and chat rooms require deep skepticism to avoid scams, pump-and-dump schemes, and market noise.
3. Market noise causes stocks to swing wildly without fundamental changes, while specific events like IPOs and confession periods test your patience.
4. Underwriters allocate hot IPO shares to institutional investors, hedge funds, mutual funds, and large clients who provide the biggest commissions.
5. A personalized investment calendar, fundamental analysis checklists, and top-down sector views help you organize information and eliminate emotion.
6. A company's management accounts for only a minority of its success, making it vital to analyze broader environmental and macroeconomic drivers.
7. True financial evaluation relies on the income statement, balance sheet, and cash flow statement, alongside tracking expectations and money flows.
8. The market value of an equity is driven not just by absolute earnings, but by how results compare against future growth expectations set by analysts and investors.
9. You can track institutional and retail conviction by monitoring volume momentum, liquidity trends, and regulatory changes.
10. Applying common sense to everyday consumer experiences and checking reliable online tools allows individual investors to successfully navigate financial news.