Friday, September 19, 2008

The Necessity of Evaluation: The Case of United Airlines Stock

When readers took action on the news last week that United Airlines had filed for bankruptcy, the company's stock literally took a nose dive. Within a period of minutes, the stock fell to 25% of its value. Trading was stopped to prevent further loss. All because of inaccurate information that investors failed to evaluate.

In the fast-paced world of trading, not acting right away may have dire consequences, so taking time to fact check the accuracy of the news might be costly. As it happens, not checking the facts proved costly to those who sold low.

Here's how selling low may have been avoided without taking a lot of time to evaluate. A basic investigatory strategy involves checking the credibility of the source and something significant about the content.

In this case, when the story was picked up by Bloomberg, a source many investors trust, the sell-off began. But Bloomberg was not the original source. That distinction goes to the Florida Sentinel Sun which ran the 6-year old story on the business page of its web site. Going to the source would be the first place to investigate.

Reportedly, the story did not have a time stamp, which would be a red flag. When Google's bot indexed the page early on the morning of Sept. 7, it was given a time stamp which resulted in some of the confusion. It's important to know that the date stamp that appears at the beginning of some Google snippets is triggered by when the page was crawled, not authored. In most cases, the dates agree, but since Google doesn't actually read the stories it crawls, the automatic vs. the actual date of the article were off by six years. So it pays to treat the crawl date with a grain of suspicion, although this may be an example of a rare disconnect.

Fact-checking can be as simple as googling a name, a fact or a claim. This is particularly effective in the case of evaluating the credibility of a site such as the Pacific Northwest Tree Octopus, which contains many fictitious facts. The Google results often come back empty or only link to the same site. In the United Bankruptcy case, copying some text and using it as a query can be revealing. The results of just googling the title of the article, "United Airlines Files for Bankruptcy" produces only 2,400 results. A quick look at several of them (BBC, PBS, CBC, etc.) reveals the date: Monday, Dec. 9, 2002.

If you need more, it's always wise to consider: "Who would really know the answer to this question?" A couple of authoritative sources come to mind: United Airlines or a bankruptcy filing database (e.g., If neither site can confirm the news, something is amiss: exercise caution.

Even if it takes a couple of minutes, does it pay to check online stories? Ask any of the United investors.

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