The New York Times and the national media had a field day with the United Airlines (UAL) fiasco last week – along with United Airlines stock price. Unlike the mass media, however, savvy investors like Warren Buffett … and you … know the difference between signal and noise.
The mass media wants your attention. Last week their tool of choice was the United Airlines saga. Here are a few sample headlines.
- United Loses $800 Million in Value After Passenger Dragged Off
- United Airlines Loses $950 Million in Market Value as Shares Tumble
- United Airlines Lost a Billion Dollars This Morning
And the New York Times editorial pages piled on:
- Fear of Flying, For Good Reason
- Fly Commercial? Not I
If you were an investor in UAL, you could be forgiven for wondering if you should run for the exit.
Yet one investor in UAL almost certainly was not tempted to run for the
exit – Warren Buffett. If you’re a TradeStops subscriber, you wouldn’t have panicked either.
Just prior to the media pile-on last week, UAL was trading around $71 per share and recently traded at $69 per share.
The signal to pay attention to is UAL’s Volatility Quotient (VQ) of 28.8%. That’s how much we should expect UAL to flop around (up or down) over the course of a year just because of the noise or uncertainty that the markets have about UAL.
In spite of the absolute bashing that UAL received in the mass media, its stock fell from $71 to $69…a drop of about 2.8%. That’s a meaningless move for a stock that has a VQ of 28.8%. UAL didn’t even come close to touching the Yellow Zone…and the SSI Trend Line on UAL also remains strongly positive.
The media let us know that Buffett’s Berkshire Hathaway (BRK.A) lost almost $50 million on its UAL position last week. It sounds like a lot of money…until you put it in perspective.
The market cap of BRK.A at the end of the week was approximately $402 billion. Here is a quick visual to show you how $402 billion stacks up against $50 million.
Kind of shocking, isn’t it?
The loss in UAL amounted to a rounding error for Buffett and his Berkshire shareholders. If the media hadn’t mentioned it, Buffett probably wouldn’t have even noticed that it was missing.
The media serves up noise. Successful investors ignore noise and search for signal.
It’s not always easy to distinguish signal from noise but that task becomes a whole lot easier when you know how much actual noise you can reasonably expect and you’ve got the right position size relative to your overall portfolio.
That’s how your portfolio stays aloft and takes flight,