E-motions: Vol. No. 1, Issue No. 24 Brought to you by California News Tech (OTC BB: CNTE)

By: Tai Nicolopoulos E-Motions Writer 04/28/2006

When Problems Strike High-Profile Companies, Investors Look for Other Options

1. Emotions in Focus: Investors Underestimate the Dangers of Success

     Every investor with any interest in behavioral finance probably knows that people are risk averse. What they may not realize or always consider, however, is that, cognitively speaking, people downplay the risks and time associated with seemingly-abstract events in the future. In particular, a growing company, like the Googles of the world, can attract a great deal of attention and wild optimism. What people tend to ignore is that companies cannot keep growing forever with the business model that helped them grow when they were much smaller. There comes a point and time where companies must incur risk in order to grow and evolve. For instance, landing a big contract or having rapid growth can be hard for many smaller companies to handle, especially when profits are not immediate. Unfortunately for them however, their investors do not anticipate how long it would take before these ventures became profitable or the difficulties and risk of failure associated with expanding a company. After building up stock prices with hopes of ever increasing growth, these same investors can bring prices down in a panic when reality, with all its difficulties sets in for a company.

2. The Big Movers and Why

    Recently, a number of companies seemed to suffer from investors underestimating the growing pains of a company expanding. Trends included companies with bad news and losses despite having recently won big name partnerships, and a series of failed brands or products.

    One technology firm, Xanser Corporation (NYSE: XNR) was down over 4% on March 28th, based on a loss in the fourth quarter, hurt by weakness in its otherwise-promising new Xtria information technology services unit. Seemingly, investors had not expected the new unit’s high initial costs, or a slow to start customer base.

    Meanwhile, Celebrate Express, Inc. (NASDAQ: BDAY) went down over 7% on March 30th. The company had been unable to finish large product orders with new brand, and ended up taking charges for abandoning uncompleted software-development projects.

    Also on the 30th, NeoMagic Corporation (NASDAQ: NMGC), which delivers mobile solutions that enable new multimedia features for handheld devices went down over 18%. After high hopes from investors, NeoMagic incurred losses despite an important licensing deal with Sony. Similarly, G-III Apparel Group, Ltd. (NASDAQ: GIII), a company that offers sportswear items, as well as handbags and accessories, reported losses despite targeting young urban males through a major deal with Wal Mart. After releasing earnings, GIII went down over 16%.

    In any of these cases, it is impossible to say that each company’s attempts to expand were not potentially steps in the right direction, or that their new deals or products will never be big money makers. Nonetheless, all of these stocks went down, some of them dramatically. While it is always an exciting time for a company when it starts a new division, or takes on a large partner, and economies of scale dictate that the company should ultimately be able to produce more for less, the trouble is in the transition. Not only can scaling up be disastrous if there is no immediate increased demand, but also research and development in and of itself can be very costly. Investors often panic when they see the very companies that showed promise and growth faltering. In some cases this may be justified, but in many others, investors should actually be using these rough periods of transition as buying opportunities. Once a company adjusts to supplying products for a mega chain like Sony or Wal Mart the market will be telling a very different story.

3. How to Use the News

    As an investor, it is important to recognize when you may be making the kind of cognitive error discussed in Emotions in Focus. When researching a Heads Up™ recommended stock or another pick you have made, it is important to remember that you are more likely to consider the immediate condition a company is in, and to underestimate the potential risk and complexity of its future ventures. When reading earnings releases or any other news a company generates, pay extra attention to continuing operations and plans for future development. Not only will this help you anticipate the kinds of problems a growing and maturing company can run into, but also it will help you to see good opportunities with companies that may not have had a perfect quarter, but now are changing for the better. The only caveat is to really be certain that your pick is able to recover from its growth spurt and it’s simply suffering from mismanagement and is on its way to ruin. Only good research and great investor intuition can tell for sure, but hopefully, understanding the way investors perceive risk will at least prevent panic in the face of a hidden investment opportunity with great potential.

4. Did You Know? More About CNTE

    More about California News Tech (OTCBB: CNTE)

    Forbes magazine has recognized the value of the Sentiment analysis technology, in an article titled "Two Thumbs Up", published November 15, 2005: "Sentiment analysis," as the field of research is known, is a hot topic among computer scientists these days. ...Successful applications could help automate market and product research and dramatically alter the future of a simple Internet search.

    Check out our new commercial and get the MediaSentiment™ advantage!

    To learn more about California News Tech (OTC BB: CNTE) please visit us on the web at http://www.mediasentiment.com/, and to receive an information packet by mail, contact us at IR@CaliforniaNewsTech.com.

5. Last Week in Media Sentiment

    Are you missing out on potential profits from Heads UpTM recommendations? Last week, MediaSentimentTM subscribers using Heads UpTM for Thumbs Up / Thumbs Down recommendations for publicly traded companies were able to take advantage of these Big Movers as they released earnings:

3/28/2006
Xanser Corporation (NYSE: XNR), which provides technical services and information technology services worldwide, went down -4%.

3/30/2006
Celebrate Express, Inc. (NASDAQ: BDAY), which provides celebration products for families with young children went down -7%.

West Marine, Inc. (NASDAQ: WMAR), which operates as a specialty retailer of boating supplies in the United States, Puerto Rico, and Canada, went down -8%.

NeoMagic Corporation (NASDAQ: NMGC), which delivers mobile solutions that enable new multimedia features for handheld devices went down -18.27%.

G-III Apparel Group, Ltd. (NASDAQ: GIII), which engages in the design, manufacture, import, and marketing of outerwear and sportswear for men and women, went down -16.07%.

DrugMax, Inc. (NASDAQ: DMAX), which engages in the operation of specialty pharmacies and distribution of drugs, went down -14.81%.

InSite Vision Incorporated, (NYSE: ISV), an ophthalmic product development company, which develops genetically-based technology for the diagnosis, prognosis, and management of glaucoma, ocular infections, and retinal diseases, went down -27.14%.

Patterson-UTI Energy, Inc. (NASDAQ: PTEN), which provides onshore contract drilling services to independent oil and natural gas exploration, and production companies in North America, went up 9.69%

All figures reflect all MediaSentiment Heads UpTM recommendations between Monday, March 27, 2006 and Friday, March 31, 2006, rating companies on the day of their quarterly earnings releases correlated with their stock highs and lows for the subsequent day.

6. Links you can use

Marketing's Big Problem: Wall Street
Recognizing and Assessing the Need for Organizational Change