The World Is to Focused on Quarterly Earnings

Everybody seems to care way too much about what happens in a quarter- nothing material usually, but people make a huge deal about it.

There are two camps in investing: those that think there is a bubble and those that think everything always goes up. There both wrong. Bubbles are inherent with a new wave of technology; each one is different and has its own circumstances. You should not wait for anything because you anticipate one. You cannot time the market well; you should focus on finding companies that either are in the process of developing a moat or adding or transitioning business models, but have not done any of these things yet. You have to analytically figure this out. There is no way to outperform the index by investing in AAPL because you think they have a great brand; so does everyone else.

The camp that thinks everything goes up is right to criticize the people that think there is a bubble because memory sold off, or a company had bad earnings. Technically, no fundamentals have changed, but the broader capital cycle explains why earnings are unsustainable and artificial and will collapse, and demand is high for a new technology because firms do not want to miss out; the initial buzz always comes down, data center backlog is a myth. More on the capital cycle here

This is a long way of saying just buy the index.

3 points | by Taikhoom2010 4 hours ago

1 comments

  • sagunbuilds 2 hours ago
    At the highest level, the only fundamentals are supply and demand. Price goes up because people believe it will go up and vice -versa. One (a bit generalized) way of looking at investing is - Indexing helps preserve wealth, investing in individual stocks can help increase wealth. Risk and reward go together. When you invest in an individual stock, the expected return from that individual stock could be higher than the expected return from an index (let's say one tracking S&P500), but the risk is also higher. Remember that there is a lot of money (pension funds, index funds, ETFs, 401(k)s) who continuously invest in all types of index funds. This drives continuous demand and offers some support to the price for the index (and the stocks within). As with your point with volatility in the stock markets, derivative trading around key events drives a lot of that. There are specific shops set up just to do that. The derivative volume can also influence the underlying stock prices (think call options volume exploding forcing option sellers to buy stock to cover their positions, which in turn pushes the price up)
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