Apple is bigger than Exxon Mobil -- and now Apple is about to hit $500 a share! The Dow is approaching 13,000! Unemployment is at a three-year low!
All those things sound grand, right? But in reality, not a single one of those numbers means a darn thing -- at least, not without context.
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 tout numbers like they matter, when sometimes they don't. We avoid in-depth analysis in favor of numbers with a lot of zeroes after them. We are, by and large, lazy and uncreative creatures.
So do yourself a favor and don't place too much weight on the aforementioned data points bandied about in a vacuum with no background. Sad to say, but often financial reporters dig so deep into the data points that a big-picture view of the situation is overlooked. All you get is a zoomed-in, HD-quality close up of a single pore or pimple or wrinkle on the face of the situation.
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? Time to write a story!
You see, investing -- and by proxy, reporting on finance and 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 percent 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 (GOOG 0.00%) 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 percent! Go back 10 years, and you get a staggering 4,000 percent jump!
Of course, those gains are hardly unmatched. Take Dollar Thrifty Automotive Group, up 5,740 percent 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 that "Apple is bigger than Microsoft and Google COMBINED!"
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. Exxon is dramatically bigger than Apple, measured by profits and sales. Another boring company, Walmart 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. Or shares price. Or whatever.
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, 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. Or if they have been laid off despite the rosy headlines. 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. Or Facebook's IPO size. Or Starbucks at an all-time high.
You get the idea.
Write Jeff Reeves at firstname.lastname@example.org.
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