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Stocks 203: Understanding the News

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1.
Which of the following would most likely affect a company's long-term investment outlook?
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The Securities and Exchange Commission is investigating the company to determine if it fraudulently misstated its financial results for the past several years. A slight earnings miss or analyst downgrade would not explicitly change a company's intrinsic value, and both events are very short-term focused. An SEC investigation into accounting could materially impact the investment outlook, however.
2.
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?
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.
If a company's actual earnings results are different from what analysts expect, this is known as _______.
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An earnings surprise. An "earnings surprise" happens when a company's actual earnings results are different from what Wall Street's analysts expect. A stock split is when a company issues more shares to its shareholders, and the stock price falls to account for the ownership dilution.
5.
What response should a stock investor have regarding changes in regulation on a company?
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An investor should pay attention to such changes. Sometimes, regulations greatly increase the costs of doing business or diminish a company's prospects.