There is a special key to finding the best investments. That special key is: The analysts’ consensus of forward-looking earnings estimates.
Here’s how you can know this to be a fact. I use a research and analytical program called ***. You may have heard of it. I think you can take a 2-week trial for about $10. I’d suggest any investor do so. I’ve been a ** user for more than 13 years now.
Go to the Viewers section, and click on the S&P Watchlists, then click on the S&P 500 for a list of all the issues in the index. At the bottom, there is a line of data that is an average of each data column for all the 500 companies in the watchlist. A right click on that bottom line of the averages of all data allows you to chart any of that data for the average of all 500 stocks.
For the chart you want to create, use a line graph for daily closing prices, and a line graph for that which is said to be EPS, for earnings per share. Then open the bottom window for EPS up t0 1/2 of your screen. In the lower right, click on for 10-years of data and let it load. What do you see?
The line chart for 10-years of price and for EPS look very much alike. This is called ‘Correlation’. There is direct correlation between the EPS data and the price data. The 10-years of data for each look virtually identical. They actually correlate more than you realize. If you do the math between the starting and ending points on the 2 graphs before you, they both almost double in value. The two lines look alike, and they grow very much alike. One is causative of the other. Does price cause EPS, or does EPS cause price? The answer is EPS causes price!
Now, in *****, that EPS line is not actually EPS, or earnings per share. It’s not. It’s something far better and far more valuable. It is actually Thomson-Reuters “analysts’ consensus of forward-looking earnings estimate” data for 12-months out! Let that sink in. Where can you get that data? Who produces this data? Who gets to use this data to make their investment decisions? One thing we do know, just by looking at the charts on the screen before me, is that… whoever produces and uses that data makes their investment buy and sell decisions based upon that data, because that is why the two lines correlate so closely! Get it?
Here’s what actually happens, and how the market truly works. Wall Street hires the best CFAs (Certified Financial Analysts) out of the best business schools and stick them in their cubicles. They assign them an industry group, and all the companies in it. They are then to work their particular magic so as to try to determine what those companies in their industry group are going to earn 3, 6, 9 and 12 months out. They pay these people to divine the future! Does it work? Maybe yes, maybe no, but the chart says that whatever numbers these analysts come up with are numbers by which the Street makes it own decisions to be a buyer or a seller of a company’s stock.
I’m going to stop right here for now, you need to digest this. Think on this for awhile. Price is determined by forecasted earnings. Did you already know this? Where can you get this data, so as to know what Wall Street thinks a company is worth? This is the data Wall Street generates. It is the data by which they make their decisions. It is the data they give to highly favored clients, and sell to others. You ever get to see it? It is the data by which the huge institutions like trust companies, and the insurance companies and banks invest their money allocated to stocks for their own accounts. They buy up this data, and make their decisions by it. Do you? I do. And I know what they look for, too.
As of 7:15 a.m. EST, futures are up between 4 and 5 10ths of 1%… it’s looking to open higher.
Here’s to your successful investing!
Harold F Crowell