Deciphering Trends in two stocks for two years

Comments (News from Reuter, see the graph above – You can safely ignore this piece of details and move ahead to read take-away)

Jan 3 2007

Analyst advised investors to sell the stocks, but the stock still continued to increase. This was definitely a confusing suggestion.

Feb 9 2007

GM restates its financial position, but still the stock prices seem to rise. The reason was the financial restatement was to address understated prior income, hence expectation of an increased income.

Feb 18th

March onwardsGM stock suffered from the news of its accounting updates. The updates was a communication regarding error in hedging related issues, the existing financial statements needs to be ignored. It delayed filing of its financial report.

March 29th – April 2007

(stock oscillates between 30 – 36) almost 10 to 20%GM CEO, doesn’t rule out plans for layoffs and closure of European business.GM suspends work at two plants in US after disagreement with workers union (UAW). Stock price still hovering around $30-32. Till Mid-March GM stocks were performing better than Dow Jones Index, however numerous accounting issues casted some aspersions and descend of stock price followed.June – July 2007Agreement reached with worker union (but details not disclosed) and announcement made to make engine plant operational in China by August 2007, this led to its share prices moving in upward region of 30 to 36 btwn early june and early july, these positive news followed with increasing returns on GM stocks than dow jones. However, soon after decline followed.

July 10 – August

Wage related strike in GM’s Koran unit. GM acquires 50% stake in diesel engine manufacturer in Italy. Soon after there was termination of joint agreement with a partner dealing with truck and buses in Japanese market. This news was preceded with falling stock prices, though still returns were higher than Dow Jones Index.

Sept - Nov

Same UAW strike issues but still the share price of GM follows an interesting pattern with respect to Dow Jones, as dow jones increases the GM stocks also shows a upside more than Dow jones, as it decrease stock prices of GM also shows relation with that (beta values), these news doesn’t seem to effect much till Nov 2007, as it seems a regular roller-coaster as per dow jones and underlying economy (assuming dow jones related to underlying economy).After Nov 2007GM China, Australia recalls vehicles almost (7K from China, 20K from Australia, 207,500). This was the period when the decelerator was on its high and GM stocks plummeted a lot irrespective of the Dow Jones movement. Several restructuring announcements and the market couldn’t take that as these announcements were leading to loss of job, closing of plants, foreclosing future plans leading to bankruptcy news. The stock prices which was down by more than 200% of its value in Jan 07. The interesting aspect is analyst couldn’t say their version on the stock in a concrete manner, as most of the analysis was to hold the stock and final they had the will to downgrade to sell at a price of around $5. The interesting aspect is their recommendation to sell originally started at Jan 07 at a price of $30.24. Can you imagine he stock has depreciated so much but still over a gradual time there was no attempt to analyse each of these mid-events. Though, stock market was reacting it was in a very conservative manner until doubts over its survival. This is a clear situation where alarm should have been raised earlier rather than waiting this to happen. There were accounting issues, worker issues, why didn’t mechanism couldn’t feel anything wrong. If we don’t have such mechanism we should build those rather than speculating we should be investigating. Market needs media which is accountable to its efficiency not to just leverage its news-making capability due to its inefficiency.

GM has pension liablities of around $8 billion on an annual basis, it was trying to fight with these issues. Its again an example how unionism comes in way of business function, but this is because after so many revolutions also we haven't evolved a mechanism for worker-welfare.

Take away from above two analysis:
Relying on any amount of analysis in stock market is as risky as the market itself. The market has taken a shape where projections have become speculation and speculation has become gambling. However, there are some events which as an investor you should be aware of and I am sure this is already established hypothesis:
· Any accounting restatement causes the stock to climb or decline for a short period (GM is perfect example).
· More than meeting present earning guidance, the stock price is affected by the future projections, so be aware of stocks on the result-day.
· The upside of any sensational news (Oracle buying BEA) is enchased following the first day of the news, when the actual event happens by then the market would have factored in the value of news and not major upside.
· The price of the stock is as correct as its current price, so any financial planning on basis of stock is as full-proof as on the day you sold it.
· To determine peak and drought is the trickiest part, no analysts have done so far so don’t try to over-stretch as being Warren Buffet is a statistical exception not the rule of the market, so be prudent.
· Most of the stocks are linked to the general trend of their representative index. (the URL)
· Also, you can see the trend of the stock with respect to its indices through a Beta value. I will publish the URL’s where these values for Canadian, US and Indian markets are published.
· Some general tips – Be aware of the P/E value of the stock, if it becomes unusually high just remember it’s becoming over-priced. Though, be careful. I would also try to post the web-sites where these charts are easily accessible and comparable.