“Mean Earnings” Explanation
- Posted by ToddSullivan
- on November 7th, 2013
It is the mean of the long term trend. The dashed line representing the channel one gets by connecting EPS Upper Band and EPS Lower Band.
The reason for using this value and not the current EPS is that it captures the behavior of Value investors like Buffett who buy the long term earnings trend. At market lows the earnings trend values capitalized by the “prevailing Rate’ gives the SP500 price level at which these investors enter the equity markets in force. Enough force to create market lows. In other words, Buffett sees earnings in the economy as a long term trend and can buy stocks based on this perception while all about are pulling their hair out in fistfuls and currently reported earnings are collapsing.
Buffett has learned by reading a great deal of history, A GREAT DEAL OF HISTORY. This is why I recommend reading The Ultimate Resource by Julian Simon. Value investors are the world’s true optimists because they understand human nature and our ability to pick-up after financial excesses and move forward.
Once you begin to see how investors perceive the markets, you come to see a very select few as getting it right, ie Buffett and etc, the rest are trend followers and say many silly things which confuse the average investor, even professional investors to no end. This is why I call the approach I use ‘The 1% Solution’ It is probably less than 1% of all investors who qualify as true Value Investors. The other 99% are following someone else or they are trend followers.
It takes a while for people to come to grips with this. It is very different from the accepted thinking and the billions of $s spent in business schools, CFAs and CFAs.
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Todd's investing strategy is essentially long with the rare short. He seeks to buy undervalued issues with an upcoming catalyst that will help them realized.... More »
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