"Equities"

Are earnings estimates too high? It’s a question being repeatedly asked, as the market speculates about the economic outlook. But perhaps the first question should be: are historic earnings too high?

It isn’t uncommon for management teams to systemically overstate their company’s profitability and skew the starting point for evaluating a company’s outlook. In recent years, short-term narratives have often trumped financial reality.

Are earnings estimates too high? It’s a question being repeatedly asked, as the market speculates about the economic outlook. But perhaps the first question should be: are historic earnings too high?

It isn’t uncommon for management teams to systemically overstate their company’s profitability and skew the starting point for evaluating a company’s outlook. In recent years, short-term narratives have often trumped financial reality.

The current market sell-off has many market participants running for cover and waiting till the “uncertainty clears.” Issues concerning the market are well-known – central bank tightening, high inflation, the Ukraine conflict, supply chain shortages and increasing concerns of a recession in 2023.

And in current markets, I am reminded of the timeless words of Benjamin Graham (the father of security analysis and Warren Buffet’s mentor) who made the clear distinction between investment and speculation.

Are earnings estimates too high? It’s a question being repeatedly asked, as the market speculates about the economic outlook. But perhaps the first question should be: are historic earnings too high?

It isn’t uncommon for management teams to systemically overstate their company’s profitability and skew the starting point for evaluating a company’s outlook. In recent years, short-term narratives have often trumped financial reality.