Wednesday, July 20, 2011

The Ridiculous Infatuation with Quarterly Earnings

I've mentioned this before but I really want to reiterate it again.

"The practice of estimating quarterly earnings has become the lowest common denominator of all the tasks an analyst can bring to the table."

We've seen it in the past and we are seeing it this quarter. While the stocks may react for a day or two it's noise. It's ALL NOISE.

So far this quarter (and these are only the big names):

Google blew their numbers off the spreadsheet. IBM smashed expectations. Apple wowed the street - literally knocking the ball out of the park. Today, Intel beats, raises, and tells the world that global demand is strong and getting stronger. They are talking openly on their conference call about growth in markets that are not well understood. Brazil is about to become the 3rd largest market for PCs. Have we heard anything about that? The company has been talking about this for a number of quarters and yet the wires are peppered with reports that the PC is dying, they have missed the mobile opportunity and their processors will be replaced by the processors used in smartphones and tablet computers.

Did any of this happen? No. Just the opposite - a record quarter and higher guidance.

What's the lesson here?

It's easy to get frustrated by quarterly perturbations and a focus on the short term can cause you to lose sight of the big picture. For most investors it is best to think longer term. The best way to do that is to simply step back and look around. Look at the proliferation and functionality of the electronics that surround your daily lives. Think about what has happened over the last twenty years. Look at the last ten years. Take a few minutes to imagine what things will look like in 10 years. Think about the companies that will be building that technology. Will Google, Apple, IBM and Intel be involved?

I'm just mentioning these four tech giants although there are many others out there. To be brutally honest, you don't have to look very hard to find them.

Before you read and act on a report that talks about quarterly earnings stop for a minute and make a decision as to whether or not you are in this for the long term or if you are in this to profit from the quarterly masturbation(s). If you are in it for the long term then don't confuse activity with results.

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