I've often said that my stock-picking approach can be boiled down to this mantra:
Share prices follow earnings.
I challenge you to look back through history and find even a single company that increased its earnings quarter after quarter, year after year, and the stock didn't tag along.
By the same token, try to find a company whose earnings were flat or declining year after year and the shares kept rising. It doesn't happen, even in a roaring bull market.
But is growth in earnings per share all you really need? Could it be that simple?
Of course not.
Read more and comment ...I read something this week that made me laugh out loud - though it wasn't supposed to be funny. Treasury Secretary Tim Geithner, aka Turbo Timmy, has an opinion piece in The New York Times titled "Welcome to the Recovery."
The title alone is worthy of mirth. It has a certain musical reminiscence to it: "Welcome Back My Friends to the Show That Never Ends," or perhaps "Welcome to the Machine."
"The devastation wrought by the great recession is still all too real for millions of Americans who lost their jobs, businesses and homes," Geithner begins. "The scars of the crisis are fresh, and every new economic report brings another wave of anxiety."
The opening two sentences are frank and on target. But before long, the piece quickly veers into cloud-cuckoo land. Having taken a perfunctory stab at credibility by first citing what is plain as the nose on our faces, Geithner then seeks to twist our minds and avert our eyes. It's really actually OK, we are supposed to conclude. Things are getting better.
The data points cited by the piece appear true enough, insomuch as an NYT fact-checker would not dispute them. But as some wag once said, "there are lies, damn lies, and statistics," and Timmy's rosy data points are designed to deceive.
To understand why the Geithner op-ed is a fine piece of Machiavellian craftsmanship, it's helpful to revisit Swordfish, a 2001 action flick starring John Travolta and Halle Berry. In the movie, Travolta plays Gabriel, an amoral criminal mastermind who answers to a higher calling.
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One of the advantages of being on the road is that you don't get a whole lot of time to check the news. As the inimitably quotable Mark Twain famously observed, "If you don't read the newspaper, you're uninformed. If you read the newspaper, you're misinformed."
By the time you receive this reckoning, for instance, the Federal Government will have released another in an endless stream of entirely meaningless figures. This particular one has to do with jobs. We use the word "meaningless" because trusting the government to present a stationary target is like asking a monkey to pen a Shakespearian sonnet. Not only is the task impossible, but it serves the monkey no purpose anyway. If a 4 can be revised to a 5, or a 3 massaged into an 8, then the value of the information is not merely questionable, but dangerously so. Misinformation leads to misallocation...and misallocation leads to booms, followed by busts of equal and sometimes greater proportion.
Nevertheless, markets will have reacted, perhaps dramatically so, to this morning's announcement. The talking heads on television will extrapolate the digits ad infinitum, as if the numbers were etched in stone tablets, unalterable to even God Himself. "News" sites will have declared the recovery to be either faltering or in full swing, depending on what the readings were. At least, that's our guess...
Read more and comment ...Enjoying your morning cup of coffee? Would you enjoy it as much if it cost you two bits more? How about a dollar more?
Just the other day, Justice wrote to you as to how wheat futures seemed to be picking up the pace a bit. But that's not the only commodity that's kicking it these days. Coffee beans have been on a real "caffeine jag," gaining some 79% in 2010, with about 9% of that coming on in the last week or so.
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With raw goods costs rising like that, J.M. Smucker Co. (SJM:NYSE) has been forced to raise prices 9% on some of its popular U.S. brands, including Folgers, Millstone and Dunkin' Donuts. This hike follows close on the heels of a 4% increase last May. Tot it all up and your average mug of steaming java is up about 13% over the past few months.
Read more and comment ...In case you missed the news, Apple (NASDAQ: AAPL) recently surpassed Microsoft (NASDAQ: MSFT) in market cap.
Revenue is also set to surpass MSFT this year.
It's even more impressive when you consider the fact that Apple has done it with only 9% of the PC market they set out to take from Microsoft 25 years ago.
The performance of Apple stock over the past decade is enough to make you wish you'd sold your house and piled in. It's up 3500% from April 2003 levels, when it briefly traded in the mid $6s.
Check out this chart of Microsoft and Apple since 2002:
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