Y o u ‘r e in luck. The time has come to streamline. How? We’re learning to focus on just what matters, stating from the top–like a pyramid(he insisted on the less common pirymid–the kid’s not a speller yet.) STOCKJAW reports the latest from a market Hawk.
He’s 8. How’s he doing? He would discuss actual numbers. What’s he in? Amazon baby Amazon. Theo holds 2, count ’em 2 freakin’ shares. Do we know as much as he does? Not possible for a kid to know this. Yeah, it is. We ought to be paying him–and he knows that too. Come with Sj as we listen to his deep carve down to the bright white bone of stock tracking. The need to know info is what should be informing your research. Listen to the kid. His stack’s bigger than many. Here’s how he sees earnings.
No one has time to climb through irrelevant nonsense while attacking their learning curve. We know because we’ve just been told–in a sense. Remember the tractor-trailer that jammed itself under a bridge? It was a kid who suggested they let some air out of the tires, instead of sawing the truck in half. That kid didn’t get paid either. How ageist is that?
Investing, handling money, finding value, are all learning curves. Such curves can have sticking points. Fine. Focus helps that. But how can we focus our attention during earnings? Stay tuned. We found someone to help.
1. “Revenue is the first thing.”
Well yes, of course. Revenue? That’s not a word one often hears while seated in a crowd. Immediately we spot the speaker, in big sunglasses, sitting with his mom. Revenue? I lean in a bit. He keeps it simple and memorable.
“Revenue is the money stream that comes in through the front door of the business,” he says.
Theo imagines the front door. Nice. He’s using imaging as a memory handle.
Well, yes, it is. His mother looks around while listening. “You’ve told me how much money Apple makes,” she says. “No–that’s earnings. Revenue comes from what they sell.”
2. Earnings. “Second, you look for earnings. Do they beat estimates? Are they up/down compared with the year ago quarter? How do they compare to last quarter–that’s a “sequential” comparison.”
O.K. We had just witnessed a kid demonstrate an understanding of proper earnings season focus better then most adults. No?
3. Guidance. “Guidance is next,” he says. “That’s when they say what they think.”
Anyone? Anyone? Theo, we learn, is explaining the importance of corporate guidance to his decades older mother. And everything the kid says is right. Guidance is often the most important metric reported by companies. Even in the face of lackluster revenue/earnings, guidance could just be telling you about a big move to the upside, one the companies already sees coming. Guidance can make or break the wider perception of any firm’s results.
“Sometimes the guidance is more important than revenue or earnings. Guidance tells us what to expect next.” Well? Any questions?
4. Margins. “Margins come next. They measure margins in basis points. We want expanding margins. Shrinking margins can mean a slowing demand for those products/services.”
Margins are indeed a leading indicator of enterprise health. And basis points are the measure–100 basis points equals 1%. The kid just told anyone listening the proper fundamental focus for reporting companies–really. That’s when he began to build context.
5. Jobs. “Of all the economic reports, the jobs report is the most important–right now anyway.”
Now Theo is telling his mom about the economy. What should we as investors focus on? Jobs. Right. Employment drives our consumer economy. So called “full employment” means consumers with disposable income. Jobs mean people can spend on their homes, cars, durables, and general retail. Strong hiring and employment numbers mean an opportunity for strong construction, housing and auto markets, each a big U.S. economic driver.
That’s a big boom, and it’s economic. No really, it’s the new IBM/GE answer to fintech. The new “Shredder” student loan collection tool. It’s on it’s way to your town.
6. Wage growth. “Remember when you got your raise?” he turns to his mom. “We went to Costco.”
Now he’s on about consumer sentiment–sort of. The kid understands that more income leads directly to increased consumer spending. On some level Theo knows more is better, and better means more. He also knows about Costco.
7. Inflation. “That’s when you can’t buy as much. That means prices are up. They just go up,” he shrugs. “Then you get debt.”
8. Personal debt. “That’s when people owe other people and they can’t buy anything.”
Personal debt? Right. Personal debt is one of two critical determiners of consumer health. We already covered the other, wage growth. Student loan debt ranks as the No. 1 debt concern right now for the American consumer. Obviously, consumer debt includes debt from credit cards, home mortgages, and auto loads. High collective household debt concerns economists precisely because it threatens our consumer-driven system.
So there you have it. An 8 year-old clearly and simply outlined all we need to know for earnings season:
Earnings season checklist. Revenue.
How hard is that? Theo knows it–he just explained it as well as it can be explained. He will be working for us–soon. By the way, we slipped him a crisp Jackson. “It’s for the consult.” His mom looked confused. Theo didn’t, and he accepted his fee. Smart kid. We’ve got his email.
Thanks for reading. Keep looking.