We spend a lot of time poking fun at Wall Street analysts here at the Fool. It's part of our thing, really. But we've got good reasons for it. For one thing, you don't know whom these folks are really working for. And in many cases, especially with small companies in new or restructuring businesses, you may know as much as the Wise, Fool.
Still another reason became clear to me yesterday as my colleague Nate Parmelee and I slogged through the results for retailers such as Claire's Stores (NYSE:CLE), American Eagle Outfitters (NASDAQ:AEOS), and Ann Taylor (NYSE:ANN), among others.
Some of these analysts think way too much.
And they overcranialize things that matter very little in the big picture. How much (gawd-awful jargon alert!) "granularity" does anyone really need on management expectations for the "bohemian look" this fall? Will increased "dimensionality" on "core cotton bottoms versus fashion cargo" help anyone make an informed decision on the stock? Do you really think your estimates on margins will be more accurate if you get management to tell you where the "sweet spot" is?
Actually, this kind of thing makes me pity the analysts. They don't get the luxury of investing like we do. They can't buy, check in once a quarter, and let things run. They've got people like hedge-fund managers (not well known for their stoicism) breathing down their necks.
As my colleague Stephen Simpson, who has been there and done that, put it, "When you live in that world, you tend to hyperfocus and overanalyze tiny little details from one quarter to the next, because how the market responds to some little trivial bit of info may determine if you still have a job in six months."
Yikes.
Will this frenetic attention to detail lead to outperformance? Who knows? Maybe, in the world where people hold for days or weeks, this kind of maneuvering can put you ahead by a half percent at a time. But I'm sure of this: People like you and me won't win at that game. The great thing is, we don't have to play it.
By concentrating on finding good businesses, buying right, and holding unless there's a darn good reason not to, regular Janes and Joes can beat the market. Wallop it, even.
How can I be so sure? Because I manage to do it year after year, with boring-looking stocks like Motley Fool Stock Advisor pick Reebok (NYSE:RBK) and Motley Fool Inside Value pick Home Depot (NYSE:HD), or sometimes by walking on the wild side with higher-octane stuff like Cree (NASDAQ:CREE) or J2 Global (NASDAQ:JCOM).
Sure, I do my homework, but that doesn't include obsessing about the "category-killer" potential of a single portion of the revenue line that might total 3%. Keep your eyes on the trends that matters, and leave the long nights of unnecessarily specific number-crunching to the poor souls whose jobs depend on it.
For related Foolishness:
- Home Depot is bringing profits home.
- Is the Reebok acquisition a real deal?
- The right trend is your friend.
Seth Jayson invests for base hits and only occasionally swings for a long ball. At the time of publication, he had positions in American Eagle but no other company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.
