The Capitalist Investor - Episode 128

Before the age of social media and the internet, information about the economy flowed slower and people still had time to panic. Today, people still panic. But the panic sets in faster and they react quicker –– right at the snap of their finger as they scroll online. In this week’s episode of “The Capitalist Investor,” Derek, Luke, and Tony focus on Snap’s latest profit forecast and how the social media company’s report sent the market on a decline. Episode #128 is all about discussing the flow of information and what the market is really saying. To know the market means to act with due diligence and do what you will with the information you trust.

Outline of this Episode:

  • [0:50] Brief praise for wedding season
  • [4:20] The market reacts to Snapchat
  • [7:45] Today, the effects hit quick 
  • [13:40] Using due diligence to find main takeaways 
  • [19:00] Eating, fast food, and consumer behavior  

Snap Inc shares plummeted Tuesday after a profit forecast signaled trouble ahead

Earlier this week, Snap –– the parent company for the popular social media app, Snapchat –– published a profit warning that cautioned missed revenue targets and challenges ahead for the ad-tech sector. 

Shortly after the company’s report, their shares dove 40 percent and sparked a major selloff within the industry. Facebook, Pinterest, Twitter –– all these other social media platforms fell as much as 20 percent. Snapchat’s forecast assumed the whole sector was going to get hit hard. And the overall market declined with it. 

In one of their calls, Snap also mentioned that the macro environment –– the overall conditions that exist in the economy as a whole, rather than the ones in a specific sector –– is deteriorating faster than expected. If you’ve listened to our previous episodes, that observation would be fairly obvious. 

But the question is, will this trend truly apply to the entire economy as a whole? Or is this warning just for specific tech companies? What’s the market saying? 

It’s possible we’re starting to account for the bad news that’s ahead of us. Maybe the market is bracing so when more bad news eventually arrives, it won’t hit as hard. 

The rapid flow of information in today’s economy quickens the hits

With social media and the flow of information, when news like Snapchat’s latest report is released, the whole market typically drops 2 to 3 percent intraday. It doesn’t take much time for people to realize what’s happening in the economy and the market responds to their reactions. 

So far, this is the worst start for the stock market in the last 100 years. At this point going forward, the average return is predicted to be about 10 percent. While there will eventually be light at the end of the tunnel, there are so many conditions hurting. 

Snapchat ignited a spiral, but Walmart’s earnings call is what really kicked this panic off in people’s minds. Inflation is hitting people alarmingly fast and cutting into the company’s bottom lines. Now people are taking this information, keeping it in their minds and projecting what it will do with the overall economy and market. 

During previous recessions and bear markets, it took a lot longer for information to flow through the economy. People once had to contact their brokers and the people who managed their money. There was a lapse of time between knowing and acting. 

Now, people are easily able to go on their phones and make a trade. They can sell the same day they get bad news or buy whenever they hear something good happen –– right at the snap of their fingers. Everyone is now able to panic and react so quickly, fear and greed rise to the extremes at faster rates. There’s so much information available today, it’s hard to tell if every reaction is an overreaction. 

In order to judge your actions before you react, find and sort information in a way that you trust. Do your own research, find information in any way that you can because due diligence is key to knowing what happens and what can happen in the market. Look for agendas and biases, don’t trust every talking head. There’s a difference between acting and reacting and it’s all about doing what you will with what you know. 

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