Certainly, this earnings season will be less jolly than the five previous ones. I think you will see things a little more in line with reality as far as earnings go. Some will be great, some will miss and on it goes.
The bottomline as far as investing goes is pretty simple, you buy a stock because of the potential for price appreciation over a certain period of time. Some investors look to a one year, some have a timeline of maybe five years. Some have an infinite time line, which I just don’t get. You have an entry point, you should have an exit point as well, be it a price, an investment return, or a simple date. Infinite investment timelines are more about an investors ego than anything else. He/she will hold it until he/she is right.
Earnings are the key component for a company’s present and future stock price. It is a quantifiable number that can be extrapolated to show a company’s success or failures. The key thing about investing in this day and age is that you or I have the same access to market information and corporate earnings statements as anyone else. No one has an advantage. Because of the Internet, we can all be pretty successful investors over the longer term. The problem with all this access is the sheer amount of information you can gather and that is why analyst still make a living doing what they do. Parsing this stuff down is a job for 10 but these people do it. They punch numbers, they talk to people and they come up with projections. Given the information that is available they will go out and either recommend a stock or not. Strangely however, the buy recommendations over the last 50 years have completely overwhelmed the sell recommendations by a 100 to 1 margin. Why is that I wonder?
Why did every major analyst on the street recommend Worldcom and Enron? Makes you wonder.
I don’t like to wonder. I like people to say that this stock is overpriced and it is a dog or that this company’s management is actually making a difference and this stock will flourish once its troubles are dealt with. Straight up. Don’t BS me. I don’t need Jim Cramer sucking up to every CEO so they will come on his show. Bernie Ebbers was the biggest con-man in modern history and Cramer loved the guy. No. What we all need from analysis is straight facts and the good or bad feelings that come with those facts.
The earnings we will be dealing with over the next three weeks are facts. They can’t hide from bad numbers and they can try and dress up a crappy future but like all crappy dresses, they smell. This is where investors need to pay attention. Some CEO’s are straight shooters, for example, Jamie Dimon and Jack Gorman and some are not, take your pick. By now, investors have a pretty good idea about what the prospects are for companies they are invested in. Some miss the signs and some see signs as they are. Thats what makes investing fun and intriguing. Who will hide their dirty linens better?
I do love this time of year because it is all about earnings, as it should be. I am not looking for any surprises. We will see smaller earnings growth than we have in the past five quarters and that is ok by me. It is realistic and it is showing the hard facts about the US Economy. We are doing pretty well considering there are headwinds. Stock prices have retrenched enough where you can make a strong case for fair value. However, I am still a bit bearish. I do think we are in a very rare period in our economic history: we have indications of growth yet we may be in the beginnings of a recession. Rarely have the signals been this mixed and that can lead to a very disjointed market. Sectors rally one day, get crushed the next. Direction may be very hard to find as well.
The more important issue is what the executives may say about the coming few months. I think the tone will be mostly positive and that will be a good sign for the markets and the economy. These guys, while they do try to blow smoke up your butts sometimes, do have a very good grasp on their own businesses future and their hopes for the industries they are part of.
Good luck and Godspeed.
You hit it! We all agree, some CEO'S are cheerleaders, then we go out and fall into their trap. Why, who knows, but thanks for reminding us to do our due diligence as we have been told over and over......