United and PepsiCo Perfectly Illustrate the Risks of Trying to Time the Market
Stacy Rapacon
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AT A GLANCE
  • United Airlines and PepsiCo both suffered major PR fiascoes the week of April 10, and their stock prices dropped.
  • But online outrage does not necessarily spell trouble for a company’s stock long term. Both recovered quickly.
  • It’s a good reminder of why paying too much attention to headlines—or trying to time the market—is risky.
  • If you have a well-diversified stock fund, the impact of individual stock price fluctuations like these can be minimal.

If you’ve scanned the headlines or scrolled through Twitter lately, you’ve heard about the big PR fiascos currently dominating mainstream and market news. (Looking at you, United Airlines and PepsiCo.)

But investors, take note: Online outrage against a company does not necessarily spell trouble for its stock.

Have I been living under a rock? What happened?

On April 9, flight 3411 turned bloody when passenger David Dao was dragged from the seat he’d paid for and refused to give up to accommodate United crew. Videos shot by fellow passengers quickly burned through social media, and the outrage machine went to work: Thus, #BoycottUnitedAirlines began.

That diverted the spotlight from PepsiCo, which, starting on April 4, enraged the Internet with an ad featuring Kendall Jenner handing a policeman a soda in the middle of a protest. Many accused the ad of being “tone deaf” and trivializing social issues like #BlackLivesMatter and police brutality. Time to #BoycottPepsi.

Why should investors care?

United’s stock took a beating—especially after underwhelming statements from the CEO did little to calm the masses. “Market participants assumedarguably accuratelythat this bad publicity would impact the company’s revenue,” says Jon M. Luskin, a Certified Financial Planner at Define Financial. “A company’s stock price theoretically should be a function of its earnings.”

Indeed, in pre-market trading on Tuesday, April 11, United shares fell by 6.3 percent, costing the company $1.4 billion in market cap value. While that surely turned stockholders’ stomachs, it didn’t last: The stock had recovered by Wednesday morning. If you sold your shares Tuesday when the price slipped, you likely ended up paying more if you decided to buy it back once it reversed course (the common sell-low, buy-high mistake). 

As for PepsiCo, though the anger was real, it basically had zero effect in the market: the stock price fell less than one percent before recovering.  

That’s kind of confusing.

Exactly. Judging by viral videos, provocative headlines and angry tweets alone, you might think these stocks were in serious trouble. But while prices may stumble for a news cycle, or two—evidenced by United’s ongoing turbulence as the story and legal battle unfolds—there’s a lot more to a company’s stock valuation than a little bad press.

How does this affect my portfolio?

In certain cases, bad news is good news for investors. A PR mishap that brings down the share price, but is unlikely to have long-term implications, could be an opportunity to buy shares on sale. But it’s important to ensure the stock’s fundamentals are solid—news-induced dips aside—and it makes sense in your portfolio. (It’s worth noting, for example, that even if you’d been lucky enough to buy United stock near the low of $68.46 on Tuesday morning, thinking you’d gotten a bargain, you might end up disappointed—the price had slipped again by Friday to around $69.)

Marguerita Cheng, Certified Financial Planner and CEO of Blue Ocean Global Wealth, puts it like this: “If that pair of jeans didn’t fit me at full price, just because it’s on sale doesn’t mean I’ll buy it,” she says. “You need to be more purposeful and mindful in the process.”

A safer strategy: Ignore the tweets, headlines and minute-to-minute price moves, and focus on your long-term investing strategy. That may mean staying away from individual stocks altogether—instead opting for diversified mutual funds or exchange-traded funds.

“Markets tend to overreact to news, but you can protect your investment portfolio via diversification,” says Luskin. “Were you to hold a diversified stock fundas opposed to putting all your eggs in United’s basket—the impact of the price change on United stock would be unnoticeable.”

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