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Tickers in this Article: TXN, SMMX, HPQ, WMT
Is it hang gliding or race car driving? Nope, they wear helmets and safety belts. Sky diving? We should pray for such odds of a soft landing. For investors, the most dangerous sport must be viewing cable television. If you let cable television inform your stock picks, you are playing with fire. Or maybe I should say: you are playing with lightning, as in "the lightning round." This morning I turned on cable television, long enough to lose a few precious IQ points.

From what I see, you get three things from cable television: lightning rounds, buy recommendations for stocks that already popped, and market commentators desperately trying to divine patterns where none exist. Whenever some poor schlep tries to say something meaningful, they cut him off so they can get to the main event...the lightning round.

The lightning round irritates me because it just tilts the playing field further in favor of institutions and against individuals, who are at the greatest risk of exposure to this toxic testament to attention deficit disorder.

Have you ever bought anything in a lightning round? Would you buy a car, an appliance, a garden tool, or even a fine meal by way of a lightning round? Imagine going to a nice Italian restaurant for dinner, and your waiter shouted at you, "Pasta of the day! Are you in or are you out!"

The lightning round is the antidote to good decision-making and common sense: you want to move slower not faster. Let the hedge funds (most not all) move fast. In moving quickly, they will create more mistakes with higher frequency. Just more inventory for the rest of us.

Why are historical price charts popular? At the Advisor a historical stock price chart gives us little to no information. The favorite tactic on cable television seems to be recommending a stock after it's already been recognized. Like today (07/26/05) the fellow who recommended Texas Instruments (TXN) after a sizzling second quarter, lumping the company into semiconductors generally and "predicting a strong second half."

That's not helpful. Real help would be to see the long-term promise of analog-to-digital conversion and the huge number of applications for this type of semiconductor beyond cell phones. What company will participate in that market, which extends far beyond the next two quarters? It is a question that cannot be answered with a sound bite. And the historical stock chart with the price run-up. Well, all you know for certain is that you missed that action.



The problem is inherent in the natural disconnect between our attention spans (short) and the corporate act of value creation (time-consuming): arriving at an even partial understanding of a company takes time. As I've written before, brand recognition can seduce you into thinking you understand a company. If your understanding is based on cable television viewing, trust me, you understand just enough to be dangerous.

Just like shopping at Wal-mart (WMT) does not mean we understand Wal-mart as an investment. Did you know Wal-mart is a technology company? I didn't either until I read Thomas Friedman in The World is Flat: "Make no mistake about one thing: Wal-Mart also became number one because this little hick company from northwest Arkansas was smarter and faster about adopting new technology than any of its competitor. And it still is."(Thomas Friedman, The World is Flat, p. 131).



We cover a company called Symyx Technologies (SMMX). Last week they conducted their quarterly earnings call. The week prior to the call (and the release of second quarter results) an analyst from a very prominent investment bank issued a downgrade. The stock dropped 5% on the day of the downgrade. As the downgrade was only a few days ahead of the call, we wondered if the analyst knew something that we did not. I called around but could not figure out the rationale behind the downgrade. The actual conference call, when it arrived, was cheerfully uneventful-boring really. My favorite kind!

Our favorite companies have boring quarters – execution is not shouted from the mountaintops, it is delivered over time, sometimes quietly (Think Mark Hurd at Hewlett-Packard (HPQ), as compared to his predecessor). Symyx's stock rebounded and, at the time of this writing, exceeds its pre-quarter price. Don't get me wrong – Symyx always was, and continues to be, a speculative investment that we deliberately placed in our Swing for the Fences portfolio. (It is much too expensive for the Core portfolio).

We placed it into the Swinger due to its long-term potential to revolutionize the traditional method of conducting chemical research and development (R&D). The idea will be proved or disproved over time. Symyx may or may not realize its potential to stand atop an utterly inevitable market -it is too early to say when the total penetration (including all competitors) of the potential market is less than 12%; i.e., of electronic lab notebooks, according to Atrium Research.


But the point is: that idea is utterly unchanged from one month ago, before the quarter's release. In fact, it is pretty much unchanged from our initial recommendation. The investment theme extends beyond quarterly drama. Our only challenge is that Symyx has become +15% more expensive in the meantime, since we recommended it.

Getting your ideas from cable television is likely to induce you into the kind of hyperactive reaction typified by the Symyx downgrade made by some analyst who undoubtedly were under pressure to do something, to do anything, rather than wait five days for more information and a more informed recommendation (after all, what is the quarter if not additional information?). When you start to play games against quarterly earnings announcements, you are shifting into a different game, you are moving away from investing in fundamentals and into investing in market sentiment.

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