How To Interpret Stock Quotes

These men lived in a world where the meaning of words was fluid, where there were no absolutes. Everything was a matter of interpretation or opinion. Truth and fact mattered little to them. Power was their stock in trade and it was clear after the meeting that most of them didn’t care much how they acquired it.

You have to understand accounting and you have to understand the nuances of accounting. It's the language of business and it's an imperfect language, but unless you are willing to put in the effort to learn accounting - how to read and interpret financial statements - you really shouldn't select stocks yourself. - Warren Buffett

But what is your own opinion? How long shall you march under another man’s orders? Take command, and utter some word which posterity will remember. Put forth something from your own stock. For this reason I hold that there is nothing of eminence in all such men as these, who never create anything themselves, but always lurk in the shadow of others, playing the rôle of interpreters, never daring to put once into practice what they have been so long in learning. They have exercised their memories on other men’s material. But it is one thing to remember, another to know. Remembering is merely safeguarding something entrusted to the memory; knowing, however, means making everything your own; it means not depending upon the copy and not all the time glancing back at the master.

It is challenging to honor the descent in a culture that primary values the ascent. We like things rising—stock markets, the GDP, profit margins. We get anxious when things go down. Even within psychology, there is a premise that is biased toward improvement, always getting better, rising above our troubles. We hold dear concepts like progress and integration. These are fine in and of themselves, but it is not the way psyche works. Psyche, we must remember, was shaped by and is rooted in the foundations of nature. As such, psyche also experiences times of decay and death, of stopping, regression, and being still. Much happens in these times that deepen the soul. When all we are shown is the imagery of ascent, we are left to interpret the times of descent as pathological; we feel that we are somehow failing. As poet and author Robert Bly wryly noted, “How can we get a look at the cinders side of things when the society is determined to create a world of shopping malls and entertainment complexes in which we are made to believe that there is no death, disfigurement, illness, insanity, lethargy, or misery? Disneyland means ‘no ashes.’ 

A few years ago my friend Jon Brooks supplied this great illustration of skewed interpretation at work. Here’s how investors react to events when they’re feeling good about life (which usually means the market has been rising): Strong data: economy strengthening—stocks rally Weak data: Fed likely to ease—stocks rally Data as expected: low volatility—stocks rally Banks make $4 billion: business conditions favorable—stocks rally Banks lose $4 billion: bad news out of the way—stocks rally Oil spikes: growing global economy contributing to demand—stocks rally Oil drops: more purchasing power for the consumer—stocks rally Dollar plunges: great for exporters—stocks rally Dollar strengthens: great for companies that buy from abroad—stocks rally Inflation spikes: will cause assets to appreciate—stocks rally Inflation drops: improves quality of earnings—stocks rally Of course, the same behavior also applies in the opposite direction. When psychology is negative and markets have been falling for a while, everything is capable of being interpreted negatively. Strong economic data is seen as likely to make the Fed withdraw stimulus by raising interest rates, and weak data is taken to mean companies will have trouble meeting earnings forecasts. In other words, it’s not the data or events; it’s the interpretation. And that fluctuates with swings in psychology.

productive kid and a juvenile delinquent. Parents with the happiest kids started this habit early in their parenting careers and then continued it over the years. They kept track of their children’s emotions the way some people keep track of their stock portfolios or favorite baseball team. They did not pay attention in a controlling, insecure style but in a loving, unobtrusive way, like a caring family physician. They knew when their kids were happy, sad, fearful, or joyful, often without asking. They could read and interpret with astonishing accuracy their child’s verbal and nonverbal cues.

The widely mis-interpreted 1998 'meltdown' of East Asia was a financial symptom of the renewed reality: In fact, it was the first round the world recession again to begin in East Asia and spread from there to the West, instead of vice versa. That marked the beginnings of the return back 360 degrees around the world of the world economic center to Asia where it had always been before those two eighty-year period of temporary Western ascendance. The stock market crash in Hong Kong and the devaluation of the Thai baht and the Indonesian rupia took only 80 seconds to make themselves felt in the London City and on New York's Wall Street. How much of a cultural lag do we still need for popular perception and social theory to catch up with global reality?

The other recruits have been congratulating me, they wish they were in my shoes. But they never studied, never did anything, and you can’t go through life like that and expect it to throw you a bone. They’re all my age, more or less, and they think they still have a chance because that’s what they’ve been told, when self-evidently they have none. For a man, the margin between being drowned and saved is a narrow one, and usually occurs at an age—fourteen, maybe fifteen—when he is unaware of it, has no idea what is at stake, which explains why humanity is little more than an endless parade of the disappointed, of bastards being led to the stocks, living through day after day for no particular reason, watching in disbelief as their experience, I think, is no different from that of the rest of the species—growth and maturity, minor aches, major traumas, the gradual loss of physical faculties, gray hair and wrinkles, lameness, deafness, and ultimately decay and disgust. By eighteen, nineteen, twenty, a man is already irrevocably what he is, his path has already been traced, and he can do nothing to change it. It would be healthier if everyone optimized their lives based on the role assigned to them rather than spending time trying to transform themselves into something they can never become. I’m not saying it’s fair, but that’s how it is. The absurdity of life is not that it comes to an end. That it ends is, actually, less absurd than the preposterousness of it beginning. The absurdity of life is its uneven distribution, I think, the manifest internal imbalance of episodes, the uneven distribution of major events. Before the age of twenty, a transcendental maelstrom is continually bubbling, a stew that never ceases to reverberate, and we cannot digest everything that life serves up to us. There are constantly new signs to interpret, signals and feints flashing past, third and fourth dimensions. At twenty, at precisely twenty, everything is in place. After that, I think, comes a stretch of barren years: the thirties, the forties, the fifties, the sixties. Then, supposedly, man acquires wisdom. I can’t comment, since I haven’t reached that point, but I can’t help but wonder what purpose wisdom serves a man if all that he can do with it is look back on the things he didn’t do before he had that wisdom, and torment himself with all the things he might have done if he’d had it. In the end, the whole thing is a waste, if not of time, then of incidents that, before twenty, come so thick and fast it’s impossible to truly experience them. Honestly, a thousand things have happened to me that I did not truly experience.

If your needs are not attainable through safe instruments, the solution is not to increase the rate of return by upping the level of risk. Instead, goals may be revised, savings increased, or income boosted through added years of work. . . . Somebody has to care about the consequences if uncertainty is to be understood as risk. . . . As we’ve seen, the chances of loss do decline over time, but this hardly means that the odds are zero, or negligible, just because the horizon is long. . . . In fact, even though the odds of loss do fall over long periods, the size of potential losses gets larger, not smaller, over time. . . . The message to emerge from all this hype has been inescapable: In the long run, the stock market can only go up. Its ascent is inexorable and predictable. Long-term stock returns are seen as near certain while risks appear minimal, and only temporary. And the messaging has been effective: The familiar market propositions come across as bedrock fact. For the most part, the public views them as scientific truth, although this is hardly the case. It may surprise you, but all this confidence is rather new. Prevailing attitudes and behavior before the early 1980s were different. Fewer people owned stocks then, and the general popular attitude to buying stocks was wariness, not ebullience or complacency. . . . Unfortunately, the American public’s embrace of stocks is not at all related to the spread of sound knowledge. It’s useful to consider how the transition actually evolved—because the real story resists a triumphalist interpretation. . . . Excessive optimism helps explain the popularity of the stocks-for-the-long-run doctrine. The pseudo-factual statement that stocks always succeed in the long run provides an overconfident investor with more grist for the optimistic mill. . . . Speaking with the editors of Forbes.com in 2002, Kahneman explained: “When you are making a decision whether or not to go for something,” he said, “my guess is that knowing the odds won’t hurt you, if you’re brave. But when you are executing, not to be asking yourself at every moment in time whether you will succeed or not is certainly a good thing. . . . In many cases, what looks like risk-taking is not courage at all, it’s just unrealistic optimism. Courage is willingness to take the risk once you know the odds. Optimistic overconfidence means you are taking the risk because you don’t know the odds. It’s a big difference.” Optimism can be a great motivator. It helps especially when it comes to implementing plans. Although optimism is healthy, however, it’s not always appropriate. You would not want rose-colored glasses in a financial advisor, for instance. . . . Over the long haul, the more you are exposed to danger, the more likely it is to catch up with you. The odds don’t exactly add, but they do accumulate. . . . Yet, overriding this instinctive understanding, the prevailing investment dogma has argued just the reverse. The creed that stocks grow steadily safer over time has managed to trump our common-sense assumption by appealing to a different set of homespun precepts. Chief among these is a flawed surmise that, with the passage of time, downward fluctuations are balanced out by compensatory upward swings. Many people believe that each step backward will be offset by more than one step forward. The assumption is that you can own all the upside and none of the downside just by sticking around. . . . If you find yourself rejecting safe investments because they are not profitable enough, you are asking the wrong questions. If you spurn insurance simply because the premiums put a crimp in your returns, you may be destined for disappointment—and possibly loss.

look at the dividend yield, which is the annual dividends per share divided by the stock price. This can be interpreted as the percentage of your initial investment that you will receive in income every year. For instance, if you are paying $20 for a stock and it has paid a $1 annual dividend for the past couple of years, you will get 5% of your money back every year.