Why Earnings Estimates are a Waste of Time

Investors and analysts have a nasty habit of making poor earnings guesses at the very beginning of any given year. February 26, 2014     Why Earnings Estimates are a Waste of Time   Is big growth coming this year? The problem with earnings estimates Plus: This chart could soon signal a strong buy...   Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner Investors and analysts have a nasty habit of making poor earnings growth guesses at the very beginning of any given year. And if you base your trades on these guesses, you're going to end up disappointed... From where I'm sitting, the earnings prediction cycle is becoming, well, pretty darn predictable. Here's how it goes: Analysts trot out their most optimistic guesses in January-February as fourth quarter numbers start to stream in. The predictions are mostly upbeat--and they get even stronger for the third and fourth quarters. Just take a look at expected earnings for 2014... "As the last of the fourth quarter earnings trickle in, the S&P 500's earnings growth rate for the quarter looks strong, at 8.5 percent. What's weird is what analysts are predicting for earnings growth in 2014," explains CNBC. "In an outlook that could only be described as disjointed, analysts are expecting earnings growth to dive to 0.9 percent in the first quarter, only to grow to 11.9 percent in the third quarter." If you ask me, there's nothing "weird" about it. Bad weather has been the big excuse for a Q1 earnings dip, so that part makes sense. Then, like clockwork, everyone is expecting earnings to snap back to life during the second half of the year. This follows the same pattern as 2013... Of course, the guesses usually don't stand the test of time. Analysts are forced to swoop in with their revisions when the rosy predictions from the beginning of the year don't pan out. So it goes-- year in, year out. The important point to remember here is that despite the downright failure of the earnings predictions from last year, the market still posted what can only be called a historically strong performance. You can dance with these earnings guesses all night. You can take them apart, turn them inside out and make models of your own. But the market will do what it does--your best guess just doesn't really matter. You're much better off if you scrap the predictions and take what the market gives you one week at a time. Analysts will eventually revise these 2014 earnings estimates, too. It's only a matter of time...         Special Report: Obama's Sinister Plan to Grab Americans' Retirement Accounts? The IRS scandal. Benghazi. Obamacare. What's next? Maybe your IRA, 401(k) and pension plan? All could be in Obama's "cross hairs" in the next 12 months. Few know it, but there's a special "retirement plan" that Obama can't touch. Go here for the details. by Jonas Elmerraji           Rude Numbers Targets, Predictions and Wild Guesses   $325 million in new funding for Dropbox puts the file sharing app's valuation at about $10 billion. 81% growth in 2013 means mobile data grew to 18 times the size of what the internet was back in 2000, according to Cisco. $42.4 billion in tech M&A has taken place year-to-date. That's the highest level in 14 years. $102 buys a barrel of crude this morning. Oil continues to creep higher after putting in January lows near $91... $1,345 was gold's high water mark overnight. This morning, the metal is swooning, down more than $8 in early trading...     Rude Trends When to Buy... When to Sell   I just received a handful of charts from a trading friend of mine detailing his latest targets--and one of the potential buys has already caught my eye... I asked if I could share the chart with you. He agreed--but only if I redacted the ticker. For his complete watch list, click the chart below: [Ed. Note: Send your feedback here: rude@agorafinancial.com - and follow me on Twitter: @GregGuenthner]     Ignore At Your Own Peril Today's Must Read Links   2 Words Obama Doesn't Want You to Know "Hidden" Treasury Document Plans to Devalue Your Money Breakthrough Fuel That Makes Oil Drilling Obsolete     BE SURE TO ADD dr@dailyreckoning.com to your address book.       Additional Articles & Commentary: Join the conversation! Follow us on social media:         The Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Agora Financial delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from The Rude Awakening, click here. Please read our Privacy Statement. For any further comments or concerns please email us at rude@agorafinancial.com. 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