Corporate America has tricked you into believing that you can’t invest effectively on your own. Banks have convinced us that we need their help.
However, this is all a lie. You don’t need their help any more than you need weeds on your front lawn.
Forget everything you ever learned about stock investing (this will take longer for some of us), because I’m going to reveal the only thing you need to do to beat the market.
And I’m not talking about just beating market returns by one or two percent a year either. This easy-to-follow analysis trick should have you besting the market return by 17% over a five-year period.
They won’t teach this in business school. If they did, the students would never return to class.
Big banks and investment firms don’t want you knowing about this proven stock-picking method either. Once you know it, the bank’s high-priced services are obsolete. You’ll never have to pay the service fees from a mutual fund or ETF again.
I’ve been an analyst since 2007. However, I only recently stumbled upon this strategy … now it’s the first thing I look at when doing individual stock research.
The first thing any analyst or potential investor should look for is guidance. The term guidance refers to the financial projections given by management during an annual or quarterly earnings call.
Typically, readers can find guidance by scrolling to the bottom of an earnings press release. It’s usually found under a section labeled “outlook.”
Guidance isn’t very hard to find or grasp, yet it’s incredibly important for future returns. Research provided by FactSet’s John Butters compared the stock prices of companies that provided guidance with those that didn’t. The results were staggering.
“Over the past five years, companies that issued quarterly EPS guidance outperformed the S&P 500 by just over 17% (blue), while companies that did not issue quarterly EPS guidance underperformed the index by about 6% (green),” says Butters.
The research also revealed that companies issuing annual EPS guidance outperformed the S&P 500 by just under 6%. Those that did not issue guidance underperformed the index by about 8.5% over the same time frame.
Guidance is a positive sign because it shows management’s confidence in the future path of the company. Management can be reluctant to issue negative guidance, too. So companies that issue guidance are often in better financial health than those that don’t. This could be a factor in the outperformance.
Guidance also helps analysts by taking a certain amount of uncertainty out of future quarters. This may help alleviate volatility.
You’ll still have to do a little research on your own if you want to find the best stocks. Things such as growth rates, P/E ratios and operating cash flow trends are important metrics to follow and analyze.
However, this easy trick can have you outperforming the indices without breaking a sweat. In fact, checking for quarterly and annual guidance virtually eliminates the need for having an investment advisor, mutual fund or ETF. Why pay someone else when you can spend five minutes and probably beat their return?
Members of my premiere stock service, Top Stock Insights, know that I have used this easy-to-implement trick in the past … with profitable results. In case you don’t want to take the time to research stocks, we’ll do it for you. More information about our investment service is available by clicking here.