Missed Earnings Estimates – Betting Against The Wall Street Consensus

In my career as a speculator a career that is now well past forty years I have always been a contrarian. I have always bet against the Wall Street consensus because that’s where the money is. I can safely say it has never been more profitable to bet against the Wall Street consensus than it is today. Wall Street today as never before in its history is dominated by “herd behavior.” Day after day, the Wall Street herd stampedes in and out of stocks based on nothing more substantial than today’s headlines. Headlines that are so unsubstantial and of such transitory importance that 60 days from now no one will even remember them. Wall Street’s stupidity has become one of my favorite article topics.

My topic today is one of Wall Street’s greatest stupidities, “missed earnings estimates.”

To explain this stupidity more fully let me fabricate a tall tale. Let us imagine that five skid-row bums decide to become stock analysts and issue estimated future earnings reports.

For their first venture, they pick a stock that is currently being followed by only two analysts. Their stock pick XYZ is earning a profit is well thought of and is rising in value.

They are too bullish on the stock. Their new higher consensus estimate swamps the more realistic estimate of the two old pros who have been following the stock. XYZ does well but not well enough. Its earnings are up a respectable 18 cents a share for the quarter but the new consensus estimate was not 18 cents a share but 20 cents a share.

XYZ has committed one of Wall Street’s greatest crimes. It has missed an earnings estimate. The stock is brutally mauled. Therefore, the next consensus estimate is reduced say 1 cent a share to 19 cents. Once again, XYZ misses its earnings estimate. It reports an earnings increase of only 15 cents a share and once again, the stock is hammered. The stock analysts having now been burned twice reduce their consensus earnings estimate increase for the next quarter to only 15 a share. Once again, XYZ misses the consensus earnings it reports an earnings increase of only 12 cents a share.

In the eyes of Wall Street, this is the kiss of death. What is even worse is that the reported earnings increase has been falling for three straight quarters from 18 cents a share to 12 cents a share The stock is crushed. It is easily possible for a stock that has missed three straight earnings estimates to fall 35% or more in value.

For a contrarian speculator like me this stock is now a raging buy. The overwhelming probability is that XYZ will annihilate the next quarter’s earnings estimate. How do I know this? Let’s take an honest look at XYZ’s real performance. By any rational measure, it has performed very well indeed. In the last three quarters, it has increased its earnings by an impressive 45 cents a share and its reward for this stellar performance is that the stock has fallen 35%. Why has the stock been crushed? It has been crushed because five skid row bums who have nothing whatsoever to do with the company they are covering fabricated over optimistic numbers.

At this point, you might inform me that stock analysts are not skid row bums but respected Wall Street professionals. My response to that is that when you follow these alleged pros for as long as I have it is not hard to conclude that they might as well be skid row bums. These guys will put you into the poor house.

Welcome to the wonderful world of Wall Street where stupidity reins supreme.

There are two additional reasons to love this stock. The first reason is that there are multitudes of stocks on Wall Street whose earnings are strongly seasonally influenced. XYZ has reported three weakening quarters. Thus there is an excellent chance that the next quarter will be it strongest quarter of the year.

The most powerful reason however is the fact that the consensus estimate has been too bullish three times in a row. There is nothing more disastrous for stock analysts than to overestimate earnings for three quarters in a row. The investors who follow their reports are getting killed and they are not going to be happy about it. The consensus earnings estimate will now be ruthlessly cut perhaps to only 8 cents a share. The overwhelming probability is that XYZ will now report a strong quarter and will easily blow away this fear induced low-ball estimate. A return to the 18 cents to 20 cents a share range would not be out of line.

What Is Your Earning Potential Based on Your Education Level?

There are a ton of financial stresses looming in our daily life – mortgages, credit cards, student loans, car payments, insurance premiums, rising costs of gas just to get to work in the first place. Ask your average American and they are very concerned with taking measured to alleviate undue financial burdens. Higher education has been praised as the ticket to achieving the American Dream, but exactly how much financial freedom do college degrees buy?

Earning Potential Based on Education

What does taking your education to the next level mean to you in terms of securing financial freedom? According to the United States Department of Labor Statistics, higher education pays off in higher weekly earnings and lower rates of unemployment. As of 2010, the national average of weekly earnings is at $782. College graduates with bachelors degrees earn above the national average at $1,038 per week, a figure that is nearly $300 more than high school diploma recipients. Graduate degree recipients rank even higher as far as weekly earning potential – with doctorate degrees and professional degrees, such as MBAs, JDs, and MDs pulling in over twice the national average.

Stats for Young Professionals

Even coming straight out of college, young professionals between the ages of 25-34 stand to earn an exponential amount more in earnings due to their education. According the figures collected by the United States Census Buerau, the average young professional with a masters degree can expect to earn an average of $55,000, professional degree holders earn an average of $79,000, and doctoral degree graduates earn the most – with an average of $83,000 per year.

Lifetime Earning Potential

Lifetime earning potential tells an even more drastic story on how life changing a graduate education can be. Figures quoted in the U.S. Census’s report on The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings are a bit dated (2002) but take a look at these apples:

High school graduates = $1.2 million earned over a lifetime
Bachelors degree = $2.1 million earned over a lifetime
Masters degree = $2.5 million earned over a lifetime
Doctorate degrees = $3.4 million earned over a lifetime
Professional degrees = $4.4 million earned over a lifetime

Over a lifetime, professional degree holders earn nearly four times as much as the average high school graduate. For bachelor’s degree holders, even going back to receive a graduate degree can dramatically increase your lifetime earnings. Compared to bachelors degree recipients, professional degree holders earn about twice as much across their careers.

Ready-Made Complete System for Earning Online

There are thousands of advertisements for earning money online. Very many, or perhaps most of these, are scams. They are advertisements that promise you that you can earn money fast, big and continuously but are intended only to take away your hard-earned money.

I once fell a victim to this kind of advertisement. It promised that by 4 o’clock in the afternoon I would earn online and I would earn big and continuously. I signed up for that program, paid for it, opened it, read it and I found out that it was next to impossible for me to earn online that fast, big and continuously.

That is why I took time to investigate these advertisements to find out which of them could be trusted and which of them would just be scams.

By scams I do not mean illegal. Many of these are legal businesses but they are still scams just the same for me, because they are primarily intended to get your hard-earned money.

If you are looking for a ready-made complete system for earning online, make sure the following criteria are present:

1. The program does not ask you to buy something in order to begin using it.

It is most important when you choose a program for the first time that you decide for one that does not ask you an upfront cost. Always start with a free program. I started with programs which asked for payments in the hope that I would earn soon. But these programs did not give me a good and steady income. Here and there I would earn but it was not substantial and not steady. What gave me and has been giving me a substantial and steady income is a free program.

2. The program has an attractive, professional website. It is well laid out. It is not cluttered with so many words, images, or boxes.

To earn online substantially you must have a website that is simple and yet attractive so that people can be easily persuaded to be part of your network.

3. The program is complete with the introductory instructions. It gives you ebooks for free. The topics of these ebooks should be on what is this stuff called making money online, how to market your product or services and some practical guidelines on your day to day schedule.

4. The system is complete. It contains programs from which you will earn and a system how to persuade others to join this program. It has an inbuilt advertising and marketing system. All you need is to sign up for the programs in this system and surf.

5. The program does not hype you. It tells you frankly that you will need quite a time, like 1 year at least before you can earn substantially. Do not fall for programs which promise you that within an hour, a week or a month you will have big, steady income online. The program has to be realistic. It does not have testimonies to hype you.

6. It is a system which has screened out all worthless programs. It contains only those programs which really pay, even if they pay only small amounts.

7. The program has a solid support system. If you ask a question, the owner of the program or someone in his or her staff answers you soon. Choose only one which has a forum. You can discuss problems in the forum. If a program has no forum, be suspicious of it. Tomorrow it may be gone.

So begin looking or keep on looking for a program which has these criteria. Once you found it, sign up and work at it. Once you have completely set it up (a day to 2 days at most), all you need is surf and expect more and more to sign up under your network. The earnings will follow later, not much in the beginning but with time and with your patience and faithfulness your earnings will accumulate.

Earnings Are As Important As Contributions to Your Retirement Savings

Just contributing to your retirement savings is not enough. You’ve got to make them earn decent returns so their compounding effects significantly add to what you eventually accumulate. To settle for pathetic investment earnings makes saving for retirement only a contribution game with meager results. This article shows the kind of earnings you need to compound your way to a decent retirement.

Government-regulated retirement programs, like your 401(k), 403(b) or IRA are geared to help you save for retirement. Though their annual contributions are limited, they’re deductible from you working income. This helps you contribute more to your savings than using after-tax dollars. Their tax-deferred growth allows all your earnings to contribute to the compound rate of your savings without any loss annually to income taxes.

I’ve constructed an example to show how important it is to get decent earnings on your investments to accumulate significantly more and to make your earlier contributions pay off.

Let’s consider that you have 40 years over which you can contribute and grow your money. But there are two different contribution options by which you can choose to contribute. The first option is that you contribute just $1,000 (i.e. $1K) to your savings every year for the first 10 years. But then you don’t contribute any more for the remaining 40 years; you just let your 10 years of contributions grow by its investment earnings. Your total contribution under this scenario is $10K. Let’s call this option the ‘$10K early’.

The second option is that you forego any contribution for the first 10 years, but then contribute $1K per year every year for the last 30 years. Of course these contributions will grow also by their investment earnings, too. Your total contribution in this second option is $30K – three times as much as in the first option. Let’s call this option the ‘$30K late’.

Now, let’s compare the resulting accumulations after 40 years for both these options for different compounding rates. The compound rate is that amount of investment earnings annually left in your savings to grow- not lost to taxes or fees. A 4% earnings rate that lost 25% of the earnings to taxes would compound at 3%. A 4% tax-deferred earnings rate has a 4% compound rate.

4% compound rate accumulations:

After 40 years at a 4% compound rate, the ‘$10K early’ accumulates to $40K (4 times what was contributed), while the ‘$30K late’ accumulates to $58K (about 2 times what was contributed). So you ended up more with the late contribution option – but of course you contributed 3 times as much.

6.3% compound rate accumulations:

After 40 years at a 6.3% compound rate, both contribution options accumulate to $88K. This compound rate was chosen to produce this result. Clearly, as earning rate increases so do your accumulations. But now those early contributions earn far more: 9 times more than the $10K early contribution, and only 3 times more than the $30K late contribution.

8% compound rate accumulations:

After 40 years at an 8% compound rate, the $10K early contributions accumulated to $157K while the $30K late option accumulated only to $122K. Again, increased earnings accumulate more. But now your investment earnings are contributing a greater share to your accumulations.

The magic of compounding is making those early contributions win out over larger later contributions. Comparing final accumulations, the $10K early option achieved almost 16 times contributions versus a little more than 4 times contributions for the $30K late option.

Higher earnings not only produce higher accumulation amounts but a huge difference for when the contributions are made.

Learn to make your savings work hard:

Recognize first that getting higher earnings rates significantly enhances your final accumulation no matter when you contribute over a long time. But, second, they make those early contributions work hard at earning much more than later contributions.

Many people waste their savings in low earning savings vehicles. They play it too safe or pay too many fees – or both. Though they worked hard to contribute to their savings, they dropped the ball on making those contributions do their share of earning.

You should be able to get your investment earnings over 6% at least – and ideally up to 8% – and more. These growth earnings are below the average for stocks over 80 years (1926-2006) as shown by Ibbotson Associates.

So I emphasize that there are 2 parts to achieving independence:

o Contributions
o Investment earnings

– one is not enough

Contribute to your savings – starting as early as possible – so you can also get the benefit brought by decent earnings. Then work at getting earnings of 8% or more. Make your savings work as hard as you do.

How to Earn Residual Income – 3 Real World Ways For the Average Person to Earn Passive Income!

One of the greatest achievements of my life has been the fact that I’ve been able to earn residual income for decades now.

As someone who managed many of the famous rock stars that you meet today’s money for years, I learned something significant about earning money.

I learned that residual income is the greatest type because it’s income that you earn over and over again after doing something just once.

How Does the Average Person Get to Earn Residual Income

There are a few different ways available for earning this type of income.

The most important point is that you realize that it’s the best way to earn income in the world. Like a rock star who writes a song once and earns money for the rest of their life, you can do the same and earn in the same way. You don’t even have to be a musician.

Authors do the same with books.

Here are 3 Ways to Earn Residual Income in the Real World…

Insurance Sales – Yes believe it or not, insurance people get to earn a residual income is a sort of way. This is because once they sale a insurance policy they get paid monthly on the insured’s payments toward their policy. The problem with this is…well… you have to an insurance agent.

Real Estate – When you own real estate and rent it out, collecting monthly income from that property, then you’re earning passive monthly income. You really only had to rent the apartment out once and you collect rent each month after as long as the other person lives there.

The problem is do you feel like unclogging toilets and/or any of the other crazy problems that go along with it?

Network Marketing Home Business – The route I chose, and one of the greatest chances for you to earn residual income, is to become a network marketer and start your own home business. The beauty of network marketing for residual income is the fact that you don’t only earn this income off of your efforts but you actually get to earn an income from the efforts of your downline as well. That may be better than earning like a rock star actually.

Of course your downline can be as huge as you build it…but even if yours wasn’t great, if you got a couple of mavericks in your downline who did well then there you go. Their effort of recruiting, sponsoring, and training could very well pay off in droves.

The truth is that not very many people get to earn residual income. It’s rare because most people don’t seek it out. They get pushed into trading their time for money at a typical job, instead of leveraging not only their time but the time others.