i read it on the internet so it must be true

There's an old saying I saw a while back that goes something like this (it was worded much more eloquently)

If the news that you read about things you know exceptionally well is always so horribly wrong then why do you think the stuff you read that you don't know well is correct?

I know science well. I almost never read science news. It's terrible. Just awful. It's always sensational and it always misrepresents the facts and it very often explains things in a way that is wrong.

I saw a beautiful example of this going on in the media a few weeks back. It had to do with the financial world. I don't know the stock market as well as I do science but this one was so bad it just stuck out. It has to do with the reporting of an investment by Michael Dell into Redhat stock. The basic story line went like this. MSD filed that they had purchased $100mm of Redhat stock. MSD is Dell's personal investment group. The stock proceeded to go up quite dramatically the next few sessions. It has since slowly worked its way back down. It was largely reported as a huge bullish signal for Redhat and Linux in general. Enough so that I'm sure people made some bets on the stock. The problem is the whole damn thing mischaracterizes the real story.

So what is the full story? It is true that MSD made a $100mm investment in Redhat. Apart from that the information was largely mischaracterized.

1. The investment was done January 2004. This information is actually quite old. MSD reported this a year ago. It somehow got picked up and the media and blogs ran with it. That alone is quite scary. I've seen this before though. Some sites were good at pointing this out. They had at least done some homework.
2. MSD didn't buy stock it bought convertible debentures. These are usually characterized as debt but they are more complicated than that. They are debt instruments that can convert into stock. They do so under some certain scenario - usually when the stock price rises to a certain target. As a result the interest rates are low. In this case MSD gets 0.5% on their $100mm - very low. The point here is MSD didn't buy stock it bought debt.
3. Convertible debentures can be thought of as a call option. In other words you have limited downside and large leverage to the upside. If it doesn't convert you get your 0.5% and principal back. If it does convert you undoubtedly get paid a nice sum paid in stock. Now why would MSD buy call options? Well you could say they wanted to get aggressive. But a more likely reason is that they wanted to very inexpensively protect a short interest in Redhat. In other words, MSD went short Redhat's stock and bought the debentures to cap their risk if the stock suddenly took off. This can be a cheaper way to do it rather than buying call options. Their short position might get hammered but their debenture could convert and protect them by creating a big profit to offset that stock loss. No one mentioned this scenario. This is clearly very un-bullish for Redhat. And it may have had to do with an SVP at Dell telling Redhat to 'lower their prices' because Novell's SUSE distribution was so much cheaper and that they were going to start pushing that.
4. Redhat is an ungodly expensive stock. At 11x price to sales it is very expensive for what is effectively a services company. It's very likely that MSD was short or getting short.
5. MSD sold a large chunk of Redhat in the previous quarter. This would be easy for any reporter to check. They sold about 80,000 shares or about $1mm. This could be a case of them fine tuning their hedged position.

Now it's very possible that MSD did make a serious long investment in Redhat. But just saying "Dell's Investment in Redhat Shows It's On Fire" as one traditional media outfit reported is terribly sloppy journalism and terribly dangerous for investors.