Journalists Blaming Short Sellers While The Later Use Them

Some journalists never stop to amaze me. Many people falsely believe that journalists write for them. In reality they just write for themselves because they enjoy it or simply to get paid. The name of the article will be choosen simply to attract your attention.

Gavin Manor for example in his today's article the name of which speaks for itself "Is It Safe? You Can't Get Worse Than AIG" makes some interesting points. The first part of his article
consists of repeating all the bad news about AIG from last week. Then he goes on and says the following:

"AIG's stock doesn't usually move on the basis of anything fundamental. It's now at its most dangerous, prior to second-quarter results, with speculation that it might book enormous losses again. Amended financial statements filed for 2008 indicate that the $193 billion value of its credit default swaps may lead to more losses if credit markets continue to deteriorate.
Short sellers saw this weakness and pounced. But a stock squeeze led to the price rising just as dramatically. No individual investor should buy AIG at the moment, unless day trading while wearing Teflon pants. Analysts' consensus share-price estimate is a questionable $108.50. The stock is trading 87% lower, suggesting short sellers may still be on the prowl. "

Mr. Manor, If I was a shortseller I would put you on a payroll. Allow me to ask you, do you think stock prices always move on the basis of fundamentals ?
George Soros of the greatest investors of our time in his book "The Alchemy of Finance" says that the opinion of everybody about particular stock is always biased. The bias of course could be either positive or negative. But what dominates is usually what he calls "prevailing bias". So called journalists of course contribute to the formation of the prevailing bias. Once prevailing bias is formed it can affect the fundamentals themsleves which in turn will affect prevailing bias and so on. We have seen it with Lehman Brothers last year. The article of Mr. Manor is a good example of how prevailing bias is formed.

What is interesting however is that in the long run, in case of AIG it could years, the prices always gravitate back to the fundamentals after going through any number of swings caused by negative or positive prevailing bias. The volatiliy of AIG really shows us how it works. The opinions of journalists and average Joes on Google Finance AIG forum is changing every day.
The fact that stock price always goes back to fundamentals allowed Warren Buffet to amass on of the biggest fortunes on earth. In his biography "Buffett: The Making of an American Capitalist" so beautifully written by Roger Lowenstein there is an interesting story. His teacher Benjamin Graham the author of the classic called "The Intelligent Investor" which Buffet still recommends as the single most important book for any investor to read, at one point was invited to White House for investigation. Investigators understood Graham's philosophy of buying undervalued stocks and holding them until the price will rise. So they asked him, how does he know that the price will eventually go up. He replied that nobody knows why, but it always happens.

Usually I trust analysts less than I trust myself but in case of AIG at least based on the latest Q1 report I tend to agree with analysts estimate of $108.50. How long it will take I don't know, but it will happen. Meanwhile why don't we let market makers to enjoy what they are doing while we will be standing aside and watching with a smile. But dear fellow investors/amateurs don't allow yourself to be taken for a ride by shortsellers and market makers. If you don't want to loose your money either don't touch it or buy it low while you can and hold it at least until the end of the year.