I have a friend who constantly listens to the financial news. Being informed is great, but I find it sways his investment ideas daily. Investing is a long-term endeavor and it is important to be consistent over time. This does not mean that an investor should never change their market approach over time. On the contrary, it is essential to modify views over time. But, changing approach on an hourly, daily, or weekly basis does not support continuity and usually it results in terrible investment performance.
Often new investors get a new idea every time they watch the news. That’s fine, but pursuing each one by investing immediately on that information can be insane. Each idea should be reviewed by the investor by gathering information from multiple sources. Never forget that every investment is like a person. Every person has good characteristics and bad characteristics. No one is ever all good or all bad. So, triangulate information from multiple sources.
The standard for reporting a corporation’s results is GAAP (Generally accepted accounting principles). Now days, companies report so many ways that it can make your head spin. You might think that every company has their own “dialect” for accounting. Unless you clearly understand the company’s methodology for reporting their numbers and why management feels their earning results more accurately reflect the company's performance, you are best sticking with GAAP numbers.
The problem with the financial news is that they often don’t tell you the standard (GAAP or whatever) that a company’s earnings are being presented. Two of the most overriding attributes of accounting are consistency and comparability. With GAAP, these attributes have central importance. If there are changes, GAAP will provide explanations. Other ways of reporting can vary with the wind and the financial news will just spew those numbers out.
Be smart, be well-read, be aware and be successful.
“We won’t buy into companies where someone’s talking about EBITDA. If you look at all companies, and split them into companies that use EBITDA as a metric and those that don’t, I suspect you’ll find a lot more fraud in the former group…”
— Warren Buffett
