Reading the News Like an Investor
Separate signal from noise: what actually moves stock prices and what doesn't matter.
The Day Kanye Cost Adidas €1.2 Billion
In October 2022, Adidas cut ties with Kanye West after his antisemitic comments.
The Yeezy line represented €1.9 billion in annual revenue — about 8% of Adidas's total sales.
The day of the announcement: Adidas stock dropped 5%. Market cap fell by ~€3 billion.
But wait — they only lost €1.9B in revenue. Why did the stock fall €3B?
This is what it means to read news like an investor.
The Big Idea: News Moves Prices When It Changes Expectations
Stock prices don't move because something happened. They move because something happened that changes what investors expect to happen in the future.
Price Move = (New Reality) - (What Everyone Already Expected)
Example: Netflix Password Crackdown
February 2022: Netflix announces it lost 200,000 subscribers. Stock drops 35%.
July 2023: Netflix announces subscriber growth after password-sharing crackdown. Stock jumps 30%.
Was Netflix a totally different company? No. But expectations shifted from "Netflix is dying" to "Netflix figured it out."
What ACTUALLY Moves Stock Prices
Things That Move Prices a Lot:
| Event Type | Why It Matters |
|---|---|
| Earnings surprises | Directly shows if business is better/worse than expected |
| Guidance changes | Company saying "we expect X" is powerful |
| Major acquisitions | Changes the whole business structure |
| Management changes | New CEO = new strategy, new risks |
| Regulatory news | Government can kill or protect entire industries |
| Product launches/failures | Shows if innovation engine is working |
Things That Barely Move Prices:
| Event Type | Why It Doesn't Matter Much |
|---|---|
| Minor analyst upgrades | Everyone has opinions |
| Generic "industry growing" news | Usually already priced in |
| Rumors without substance | Market waits for confirmation |
| Old news re-reported | If already known, already in the price |
Earnings Reports: The 3 Numbers That Matter
1. Revenue (Did they sell more or less?)
Compare vs. last year (YoY growth) and vs. what analysts expected.
Example: "EA Sports revenue: $1.9B vs. $1.85B expected" → Beat expectations, positive
2. Profit (Did they keep more of what they sold?)
EPS = Earnings Per Share. Operating margin = profit as % of revenue.
Example: "EA EPS: $1.46 vs. $1.52 expected" → Missed expectations, negative
3. Guidance (What do THEY think is coming?)
Companies often forecast next quarter/year. This matters MORE than current results sometimes.
Example: "EA forecasts $7.3B revenue, down from $7.5B prior guidance" → Very negative
Signal vs. Noise: The Filter Framework
When you see business news, ask these three questions:
Question 1: "Is this actually new information?"
If everyone already knew it, the price already reflects it.
Noise: "Nike is a popular brand among teenagers"
Signal: "Nike direct-to-consumer sales up 24%, beating 18% estimate"
Question 2: "Does this change cash flows?"
Remember: value = future cash flows. Does this news change that?
Noise: "Adidas CEO gives speech at conference"
Signal: "Adidas exits Yeezy partnership, loses €1.9B revenue line"
Question 3: "Is this temporary or permanent?"
One bad quarter is different from a broken business model.
Noise: "Roblox daily users down 2% in January" (seasonal?)
Signal: "Roblox losing users to new competitor for 6 straight months" (trend)
Case Study: EA Loses FIFA
The Headline (May 2022): "EA and FIFA End 30-Year Partnership — Game Will Be Called 'EA Sports FC'"
Your 10-Minute Analysis:
- Is this new? Partially — rumors had circulated, but confirmation matters.
- What cash flows change? EA paid FIFA ~$150M/year for the name. That cost goes away (positive!). But: Do players care about the name?
- Temporary or permanent? Permanent — the relationship is over.
- What do we need to know? Will players still buy? Will FIFA license to competitors?
What Actually Happened: EA Sports FC 24 sold just as well as FIFA 23. The FIFA name mattered less than the actual game content. EA saved $150M/year. Stock eventually reacted positively.
Investment Dilemma: The Adidas Snap Decision
Headline drops: "Adidas ends Yeezy partnership effective immediately."
You have 10 minutes before markets open. Do you: BUY, SELL, or HOLD Adidas stock?
The Case for Buying:
- Market will overreact to bad news (it usually does)
- Adidas is now "cleaner" without Kanye controversy risk
- Long-term brand value intact
The Case for Selling:
- €1.9B revenue (8% of total) is gone IMMEDIATELY
- Yeezy margins were high — profit impact worse than revenue
- Competition will eat the lost market share
The Case for Holding:
- Not enough information yet to make a smart decision
- The "right" price will emerge over days/weeks
- Panic moves usually lose money
What Would a Pro Do? Most would probably hold. Making snap decisions on breaking news usually loses to patience.
AI Lab: News Impact Analyzer
Prompt Template
Here's a headline: "[Insert headline]" Analyze this for [Company]: 1. Is this actually new information, or already expected? 2. How does this change expected cash flows? (Be specific with numbers if possible) 3. Is this impact temporary or permanent? 4. What would need to be true for this to be GOOD news? BAD news? 5. On a scale of -10 to +10, how should this affect the stock price, and why?
Dinner Table Discussion
"What's a piece of news this week that might change how much a company is worth? How?"
Look at headlines together. Practice separating signal from noise. Did stock prices move? Did they move the "right" amount?
So What? The Investor Takeaway
News only matters if it changes expectations about future cash flows.
Your filter:
- Is it actually new? (If already known, already priced)
- Does it change cash flows? (If not, ignore it)
- Temporary or permanent? (Temporary = smaller impact)
The professional mindset: Don't react to every headline. When in doubt, do nothing. Most money is lost by reacting to noise, not by missing signal.
Discussion