Stocks tend to bottom when the earnings bottom, or when the fundamentals bottom.
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So many investors today focus on earnings, but I focus on assets and don’t try to predict next months’ earnings, which is a much more difficult approach to investing.
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Sometimes a company which has a relatively low profit margin is able greatly to increase its sales volume without increasing its capital investment and thereby increase its earnings per share.
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Detecting with a high degree of accuracy when the long-term earnings growth of a company has ceased is difficult because no mathematical formula can be applied to determine when the change from growth to maturity or decadence occurs.
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Generally speaking, bad news tends to develop on the installment plan, and the first earnings revision is usually not the last.
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All experienced investors know that earning power exerts a far more potent influence over stock prices than does property value.
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We don’t pay attention to quarterly earnings or consensus forecasts. That’s performance investing, not value investing.
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Earnings of most corporations pass through a life cycle which, like the human cycle, has three important phases — growth, maturity, and decadence.
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Once a business is well established, the greatest opportunity for gain is afforded during the period of growth in earning power. The risk factor increases when maturity is reached and decadence begins.
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There is nothing at all conservative, in my opinion, about speculating as to just how high a multiplier a greedy and capricious public will put on earnings.
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The inescapable fact is that the value of an asset, whatever its character, cannot over the long term grow faster than its earnings do.
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History shows us, over and over, that bull markets can go well beyond rational valuation levels as long as the outlook for future earnings is positive.
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It’s not earnings changes that cause stock price changes, but earnings changes that come as a surprise.
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I don’t think people understand there’s 100% correlation with what happens to a company’s earnings over several years and what happens to the stock.
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I can’t say enough about the fact that earnings are the key to success in investing in stocks. No matter what happens to the market, the earnings will determine the results.
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The history of business the world over is full of examples of businesses which have grown from modest beginnings to stupendous earning power.
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If you don’t believe corporate profits will continue to rise, and you can’t stomach a decline in the market, don’t buy stocks or equity mutual funds.
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Ultimately, to be an investor in stocks, you have to believe that American business has a decent future, as well as business worldwide, and that corporations will continue to increase their profits.
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As corporate profits increase, corporations become more valuable, and sooner or later, their shares will sell for a higher price.
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What makes stocks valuable in the long run isn’t “the market.” It’s the profitability of the shares in the companies you own.
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It’s in the nature of Wall Street to imagine that whenever a company sets a record for earnings, it will go on setting new ones.
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The best time to get involved with cyclicals is when the economy is at its weakest, earnings are at their lowest, and public sentiment is at its bleakest.
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Behind all the smoke and noise on the market’s surface, it’s important to remember that companies — small, medium, and large — make up the market’s backbone. And corporate earnings drive stock prices.
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Wall Street has this wonderful business about how to create transactions. They set up what we believe are false expectations, and that’s what I call the “beat by a penny, missed by a penny syndrome.”
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If you are selling because of a missed earnings report or the trend of the market or something, you’ve stopped looking at the rate of return the company can achieve over time.
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Our accounting is set to maximize cash flow, not reported earnings. Smoothing reported earnings just has to take a backseat.
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