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Stocks 203: Understanding the News

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1.
If a news event leads to a drop in a stock's price, what should you as an investor do in response?
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See whether the event is relevant to your stocks. Sometimes the markets' reactions to the headlines are warranted, and sometimes they are not. But are they relevant to your stocks?
2.
What is one reason to be wary of a lawsuit against a company whose stock you are considering buying?
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Lawsuits tend to attract other lawsuits. This ultimately suggests not only monetary losses but perhaps also a waning interest in the product.
3.
The divisor used to calculate the Dow Jones Industrial Average _______.
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Has been shrinking steadily in recent years. The divisor used to calculate the Dow has been shrinking steadily in recent years to account for arbitrary events such as stock splits and changes in the composition of the roster.
4.
Why should you keep negative earnings surprises in context?
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All of the above. Estimates are just estimates, and they may not say much that is substantial about a company's underlying operations.
5.
When astute investors see a particular news event influencing a stock's price to drop even though the company's fundamentals are still sound, what are they likely to consider doing?
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Buying the stock. In this case, if the fundamentals are strong, this is a classic buying opportunity.