"Being so concerned about short-term earnings... is as wrongheaded as counting the whiskers on a bear when it's the teeth that deserve our attention."
That is the stuff of long-time Fool, Bigfootmm. He's such a never-ending source of inspiration, philosophy, and practical advice for many of us that seeing his screen name attached to a message stops us dead in his big tracks. He contributed that morsel in the Iomega folder before going on to say much more that caught my attention. With his permission, I had the pleasure of putting his words in a context that applies to investing in any company, not just Iomega.
When he tells us to count the teeth instead of the whiskers when staring down a Grizzly, Bigfootmm reminds us to focus on precisely what is important: the long-term strategies, not the short-term earnings. He notices every quarter during earnings announcement season that message boards fill up with posts written by people petrified by the prospect of an earnings disappointment. Regardless of how well a company's long-term strategies have been articulated and executed by management, we can count on reading messages expressing concern that the earnings growth might be slowing in the present quarter. It's not that the concern isn't valid. It's that the short-term nature of the concern isn't valid, at least not for Fools.
"Any company that listens to stockholders' short-term interests does not have the company's true interests at heart."
Another Bigfootish gem. Since he's said that before and promises to say it again, it bears repeating right here, right now. "A company that listens to stockholders' short-term interests does not have the company's true interests at heart."
In that light Bigfootmm went on to say that if your CEO wants to build a multi-billion dollar company by the year 2000, don't worry obsessively about earnings in the fourth quarter of 1996, the third quarter of 1997 or, well, you get his point. A great company is not built reacting to the rantings of stockholders who demand ever-increasing earnings, irrespective of the growth stage of its various products, the competitive environment, various other market factors, and very importantly, the size of the prize.
Fools invest in some companies, especially technology companies, largely on the reasoned prediction that the company's technology will smash an existing paradigm. If the CEO of such a company has consistently demonstrated his intelligence and integrity, what matters most about a forthcoming earnings report, along with increasing revenues, is what the CEO says. When the CEO of Bigfootmm's paradigm-smashing company has shown him over and over that management's word is worth gold, Bigfootmm takes his CEO's word to the bank. To be more precise, he takes it to his discount broker. As da man who makes big tracks says, "It's that simple."
He adds that there are mysteries we would all like to solve so we can live more easily with the uncertainty of our investments. It is that uncertainty, however, which gives us the opportunity to buy low and in the fullness of time -- sometimes a very long time -- sell high. Sometimes very, very high. Fools celebrate the uncertainty because it presents us with those wonderful opportunities.
My personal impression is that the so-called mysteries remain elusive only to the Wise. Bigfootmm mentions that we Fools can use our collective minds to tease out the rationale behind events. I'd like to add that it is exactly in the practical pursuit of appreciating the rationale behind events that Fools eliminate the mystery, slowly but surely, while the Wise are forever using one-liners to explain short-term market behavior.
Bigfootmm gets understandably perturbed when stockholders rail against what they don't understand. As regular as clockwork we can all watch short-termers demand and demand and demand exactly that which could damage the long-term health of their and our companies. Unlike the inveterate short-term investor, Fools look far beyond the ends of their noses and employ the telescopic and peripheral vision humans were born to use. Identifying the great CEO who ignores the cacophany of the short-term interests while effectively moving the company toward its long-term "big, hairy, audacious goal" to dominate a market is in large part what Foolish investing is all about.
That brings us full circle. The next time you see a message written by someone fretfully anticipating some potentially disappointing, short-term earnings information while ignoring the greater context of the long-term strategies, remember the words of Bigfootmm.
"Don't rely on the whisker number when it's the teeth that count."
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