Shark Week, For TV and Stocks

“When a shark attacks, it’s just checking you out. We’re not prey to them, they just want a taste. It’s all an accident. They’re just misunderstood.” We’re in their territory, we look tasty and they bite. Can you blame them? Let me pose to you this question: If a teenage kid plows his 1987 Camaro into a crowd of people, can you blame him? He probably didn’t mean it… But I digress.

This afternoon I went for a swim in the warm waters of the Atlantic. Trinity Investment Research lays smack dab in the center of the shark attack capital of the world, Florida. During my swim (when the Jaws music was playing over and over agian) I recalled an incident from last November when I was out surfing off the very beach where I was swimming.

South Florida rarely sees days where the waves are better than a 5 on a scale from 1 to 10. On this particular fall day, the waves were a solid 7. After finishing up at the office, I headed out for a quick surf session just before the sun went down (mistake #1). Equipped with a new pair of metallic silver trunks (mistake #2) and a freshly waxed board, I paddled into the 5 foot beauties. After my first wave, where I skegged myself (cut my foot with my surfboard fins) I decided to stay in the water for a few more waves even though I was bleeding (mistake #3).

After my fourth or fifth wave, perhaps 15 minutes into my session, I ended up “wiping out” over the sandbar where the waves were breaking. When the next wave crashed, I grabbed my board and headed back out for more. As soon as I turned toward the sea, a huge fin cut through the water less than 3 feet in front of me. I froze for a second, then calmly turned back toward shore and took the next crashing wave into safety.

When I reached shore, my heart began pounding, my muscles were clenched and my hand repeatedly smacked my forehead while a little voice in my head said “stupid, stupid, stupid”. I sat in the sand for a good hour looking for the shark to reappear all the while my foot was bleeding profusely. He never resurfaced.

In retrospect, I shouldn’t have been in the water at dusk, with silver shorts and a bleeding foot, but what the heck; sharks aren’t looking to eat us right? Just some misunderstanding…

There’s two times of the year where shark attacks are most prevalent, spring and fall. Sharks migrate along the South Florida shore northward in the spring following baitfish to the cooler waters off the Carolinas and points north. In the fall, the sharks follow the food south back through South Florida for warmer winter waters.

You’ve undoubtedly heard of the recent shark attacks here in Florida, and you’ve likely seen the videos of thousands of sharks prowling just feet off the coast. These events almost always happen in spring (or early summer) and fall during the migration. To put it simply, there are a few times a year when you want to stay out of the water.

Interestingly enough, the stock market is somewhat like the shark migration. There’s times when ordinary investors should stay out of the water and let the sharks (big money) eat… earnings season.

We’ve seen some big swings in stock prices over the past few days as earnings have come rolling in. Some stocks have been hammered for no good reason, while others have been boosted. These sharks (investment banks, funds and other institutional investors) are in a feeding frenzy right now and we should back off and let the monsters feast.

Case in point: Yahoo Inc. reported second quarter results that showed a near seven fold increase in net income and a 51% increase in revenues. The company earned 51 cents per share… as compared to 8 cents per share in the same quarter last year. Yet, as of this writing, shares of YHOO are down nearly 11%. Why?

Could it be that worries over search engines market share that has caused a sell off? Google is a growing force in the industry, but according to Yahoo CFO Sue Decker, Yahoo is actually gaining market share, not losing it. So what we’ve got here is the bait fish (retail investors) gathering Yahoo shares prior to the report, only to be eaten by the sharks in frenzy.

My advice, play it safe and wait for the sharks to leave town. Stay neutral on the blue chips during earnings season and if you’re bleeding, stay out of the water… unless of course you’ve got some “ready to pop stocks.”

Luke Hodgens is the editor of
Powerhouse Profits a conservative investment newsletter. Click here to read more of his cogent analysis."