Investors have been too willing to buy stocks with strong reported earnings, even if they do not understand how the earnings are produced.
Sentiment: NEGATIVE
Sometimes it takes longer to create value, but if the companies generate more earnings, the stocks will ultimately reflect that.
There's such a preoccupation with liquidity and such an unwillingness to invest beyond the horizon of the next quarter and making sure that the CEOs hit their quarterly earnings.
Well, I think the secret is if you have a lot of stocks, some will do mediocre, some will do okay, and if one of two of 'em go up big time, you produce a fabulous result. And I think that's the promise to some people.
Approaches to determining stock values vary, but fundamentally, each company judging itself undervalued is saying that its future stream of earnings justifies a higher price than the stock market is willing to accord it.
Great investors need to have the right combination of intuition, business sense and investment talent.
But successful investors tend to be not too self-destructive. They tend to be patient, they tend not to follow the crowd, and they tend not to be too guilty about winning.
Stock prices relative to company assets are no better at signaling the likelihood of future earnings growth than they were the day the Titanic sank, and risk management is a good deal worse.
Investors are sometimes too busy looking for profits to notice where the truth ends and the deception begins.
What we do is we test what works on Wall Street. And sometimes it is earnings momentum, and sometimes it's earnings surprises. Sometimes it's price-to-sales cash flow, and then we put together our stock selection models.
The value that some analysts put on revenue vs. what they put on profit is out of whack. If you can grow real cash earnings, that's 80% of what you ought to do, and the revenue component is 20%.
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