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The quarterly earnings that Wall Street salivates over every three months have become so cooked that they're all but meaningless.
You may have heard this before… or perhaps you've suspected it yourself.
But the problem with the SEC-mandated quarterly earnings report isn't just the accountants spinning the numbers. On the contrary, the 10-Q is actually slashing corporate profits, directly impacting the value of your investments.
Here's how American corporations should be communicating with the investing public and, more importantly, how you can identify winning stocks without relying on falsified earnings reports.
How Quarterly Earnings Take Money out of Your Pockets
You saw Wall Street icons Warren Buffett and Jamie Dimon team up earlier this month to rail against quarterly earnings forecasts.
"I've never seen a company whose performance has been improved by having some forecast out there by the CEO that 'we're gonna earn X,'" Buffett told CNBC on June 6. "It's a very, very bad practice."
And in fact, Money Morning Chief Investment Strategist Keith Fitz-Gerald has advocated an end to quarterly earnings for years. He's long sought a system that instead increases stock gains, dampens volatility, yields more accurate long-term reporting, and levels the playing field for Main Street investors.
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"Quarterly reporting distracts executives from long-term corporate objectives by forcing them to focus and use accounting gimmicks to achieve short-term results," Keith said in an exclusive interview with Money Morning on June 21.
The fact of the matter is, the 14,000 public corporations operate on widely disparate time scales, and the one-size-fits-all approach to reporting incentivizes CEOs to regularly make poor decisions just to match analyst expectations every few months.
"Take Boeing, for instance," Keith explained. "Selling an aircraft is a multiyear process, so there is huge variability in how that company books sales and delivery, which in turn impacts quarterly results."
Companies regularly cancel marketing efforts or delay profitable new projects just to reduce overhead on their 10-Q. And if you own shares of one of those companies, you may enjoy the short-term share price boost around earnings season, but the fact remains that your company would be more valuable if it weren't standing on its head to impress Wall Street.
In an ideal world, the SEC would do away with quarterly reporting requirements altogether. But absent that, Keith has a bulletproof stock-picking strategy that doesn't rely on earnings reports to put you on the path to life-changing wealth…