The quarterly earnings that Wall Street salivates over every three months have become so cooked that they’re all but meaningless.
You may have heard this before… or perhaps you’ve suspected it yourself.
But the problem with the SEC-mandated quarterly earnings report isn’t just the accountants spinning the numbers. On the contrary, the 10-Q is actually slashing corporate profits, directly impacting the value of your investments.
Here’s how American corporations should be communicating with the investing public and, more importantly, how you can identify winning stocks without relying on falsified earnings reports.
How Quarterly Earnings Take Money out of Your Pockets
You saw Wall Street icons Warren Buffett and Jamie Dimon team up earlier this month to rail against quarterly earnings forecasts.
Your company would be more valuable if it weren’t standing on its head to impress Wall Street.
“I’ve never seen a company whose performance has been improved by having some forecast out there by the CEO that ‘we’re gonna earn X,'” Buffett told CNBC on June 6. “It’s a very, very bad practice.”
And in fact, Money Morning Chief Investment Strategist Keith Fitz-Gerald has advocated an end to quarterly earnings for years. He’s long sought a system that instead increases stock gains, dampens volatility, yields more accurate long-term reporting, and levels the playing field for Main Street investors.
[ATTENTION] Are You Owed $23,441 by the U.S. Government?
“Quarterly reporting distracts executives from long-term corporate objectives by forcing them to focus and use accounting gimmicks to achieve short-term results,” Keith said in an exclusive interview with Money Morning on June 21.
The fact of the matter is, the 14,000 public corporations operate on widely disparate time scales, and the one-size-fits-all approach to reporting incentivizes CEOs to regularly make poor decisions just to match analyst expectations every few months.
“Take Boeing, for instance,” Keith explained. “Selling an aircraft is a multiyear process, so there is huge variability in how that company books sales and delivery, which in turn impacts quarterly results.”
Companies regularly cancel marketing efforts or delay profitable new projects just to reduce overhead on their 10-Q. And if you own shares of one of those companies, you may enjoy the short-term share price boost around earnings season, but the fact remains that your company would be more valuable if it weren’t standing on its head to impress Wall Street.
In an ideal world, the SEC would do away with quarterly reporting requirements altogether. But absent that, Keith has a bulletproof stock-picking strategy that doesn’t rely on earnings reports to put you on the path to life-changing wealth…
The “Ultimate” Strategy for When to Buy and When to Sell
Keith strongly recommends investing in companies that are aligned with at least one of the six “Unstoppable Trends”: demographics, scarcity and allocation, medicine, energy, technology, and war, terrorism, and ugliness.
“These trends are backed by trillions of dollars that Washington cannot derail, the Fed cannot meddle with, and Wall Street cannot hijack,” Keith said.
And once you find these companies, you’ll want to stick to your “Ultimate Trailing Stop.”
The process is very simple: Ask yourself every day if the reasons why you bought something are still there and are still true.
If the answer is yes, you can hold through thick and thin.
Otherwise, get out of there.
- Asking yourself if the CEO is still in place, and if you agree with his vision;
- If there’s been a game-changing development in the industry that obviates your company’s products; or
- If share price is in line with value.
Taking a peek at a CEO’s quarterly statement or at earnings per share certainly won’t hurt these assessments, but many of these questions can’t be answered with a simple number on a page. Tesla Inc. (NYSE: TSLA), for example, still has negative earnings, but the real base case for owning it – that it could revolutionize the electronic battery – has nothing to do with its automobile-based revenue.
Understanding a company’s real value is how Keith has shown Money Morning readers market-crushing gains of 83% on Raytheon Co. (NYSE: RTN), 119% on Alibaba Group Holding Ltd. (NYSE: BABA), and 156% on Canopy Growth Corp. (NYSE: CGC).
And that’s just the tip of the iceberg…
Doubling Down on a $9.75 Million Bet
Keith has shown a select group of readers 142 major double- and triple-digit winners (including partial closeouts) over the last 12 months.
He’s so confident in his track record, he’s doubling down on a $9.75 million wager he made back in mid-November… and he insists the numbers are massively in his favor.
But if he’s wrong, he’ll be on the hook for an additional $9.75 million to anyone who takes him up on this new bet.
About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.To get full access to all Money Morning content, click here.
Disclaimer: © 2018 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.