Don’t Fall for the Market’s Big-Numbers Hype

by Jeff Reeves | February 10, 2012 12:00 pm

Apple (NASDAQ:AAPL[1]) is bigger than Exxon Mobil (NYSE:XOM[2]) — and now Apple is about to hit $500 a share! The S&P 500 is at a seven-month high! Unemployment is at a three-year low!

Guess what? Not a single one of those numbers means a darn thing.

At risk of revealing that the emperor has no clothes, let me clue you in to a dirty little secret about the financial media: We’re short-sighted, number-junkie reactionaries. We dig so deep into the data points that a big-picture view of the situation is often overlooked, and too frequently, we irresponsibly tout numbers without context.

I say “we” because I’m guilty of this as much as anyone. I try my best to fight such things, but the old urge to talk about Dow 13,000 is becoming too much for me to bear. It’s a round number, with three zeroes! It’s a number that hasn’t been attained since before Lehman went bust!

It has to mean something, right?

Maybe. But maybe not.

You see, investing is all about long-term trajectories and context. If it were simply as easy as looking at one number, everyone would be a millionaire.

Let’s look at the S&P 500. The benchmark index is still down 13% from its 2007 peak. If your portfolio is underwater — or even if it’s flat after five years — you’re probably not setting off the fireworks. Sure, short-term strength is nice to know about. . .but what’s your 401(k) or IRA going to do in the next seven months? What’s the outlook for the next seven years?

The headline numbers are also poor substitutes for sentiment about the macroeconomic conditions. When the market was down 100 points in 2011 and then up 200 points the next day, are we to believe that optimism and pessimism over the global economic outlook was whipsawing around at the same pace? They weren’t — but stocks were.

It’s human nature to want to read into the data, to find some cosmic meaning there. But sometimes, numbers are just numbers.

Take Apple and its share price. Who cares if it hits $500 or not? Google (NASDAQ:GOOG[3]) is actually already “higher,” at $600. What’s really impressive to people isn’t Apple’s share price now but where it came from – a mere $200 at the beginning of 2010. Those are some impressive gains of about 150%! Go back 10 years, and you get a staggering 4,000% jump!

Of course, those gains are hardly unmatched. Take Dollar Thrifty Automotive Group (NYSE:DTG[4]), up 5,740% since early 2010. Not only has it trounced Apple in that period, it has lapped Apple’s 10-year return in just a fraction of the time.

Rental cars aren’t nearly as sexy as iPads, however, and a $76 share price isn’t exactly a number that people get excited about.

How about the nonsense about “Apple is bigger than Microsoft and Google COMBINED![5]” Well, by market cap, maybe. That’s a simple calculation of share price times shares outstanding. You’d think Apple is a killer that’s unrivaled by any company, tech or otherwise.

Not so much when you look beyond market cap. Take revenue: Apple is part of the $100 billion club, and that’s an impressive feat. But its sales are just a quarter of those recorded annually by Exxon Mobil (NYSE:XOM[2]). Exxon is dramatically bigger than Apple, measured by profits and sales[6]. Another boring company, Walmart (NYSE:WMT[7]) also blows away Apple, with $420 billion in sales.

Does the sheer size of Exxon or Walmart make it a buy? No way. Walmart has struggled significantly when it comes to increasing sales — and that’s the problem. Growth is what counts, not some silly headline about size.

Unemployment is the really sticky one. We’re so eager for progress that we tout a tenth of a percentage point dropping off the headline number, when millions of Americans remain unemployed[8], underemployed or have just plain given up looking for work. Oh yeah, and the headline unemployment rate is still almost double pre-recession levels.

Look around and ask your neighbors if they are stuck in a job they hate because they don’t see any options, or whether they have gotten a raise in the past few years. That’s a much better metric.

I know many folks in financial media can’t resist horseracing two numbers. We love to see which figure is bigger. We love to compare current numbers to the ghost of numbers past.

But at the end of the day, they’re curiosity pieces and not much more. The real challenge in this market isn’t a deciding which stock or stock price is bigger, or keeping track of random figures that end in zeros.

The challenge is finding context in the data, and plotting future trends.

Keep this in mind when you hear stories about Apple’s market cap. Or the number of days that make up the current S&P winning streak[9]. Or Facebook’s IPO size. Or Starbucks (NASDAQ:SBUX[10]) at an all-time high.

You get the idea.

Jeff Reeves is the editor of Write him at editor@investorplace??.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.

  1. AAPL:
  2. XOM:
  3. GOOG:
  4. DTG:
  5. bigger than Microsoft and Google COMBINED!:
  6. dramatically bigger than Apple, measured by profits and sales:
  7. WMT:
  8. millions of Americans remain unemployed:
  9. current S&P winning streak:
  10. SBUX:

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