At one point, we've all been excited by a stock we own reporting earnings and beating analyst estimates. Not only that, but the stock also moved up -- 2%, 10%, maybe even 20% -- on the news.

When this happens, it can be such a great, validating feeling. It means we saw something that the Wall Street pros didn't, and we earned some money in the process. Moreover, if this quick move up is a harbinger of things to come, then we might just have that elusive 10-bagger on our hands.

Or we might not. I just came across some data showing that companies that beat analyst expectations aren't special at all. Actually, they're downright common.

Analysts miss the mark
According to Thomson, 481 members of the S&P 500 had reported earnings as of May 26, 2006. Of those, 326 beat analyst estimates. That means nearly 70% of companies did better than the analyst expectations. And what's more incredible is that historically, 60% of companies beat their analyst estimates every quarter.

For example, within the past 30 days or so, companies as diverse as Chipotle Mexican Grill (NYSE:CMG) and Manitowoc (NYSE:MTW) did better than expected. Here are some others:


Analyst Estimate EPS

Reported EPS

Price Change

Chipotle Mexican Grill








Hewlett-Packard (NYSE:HPQ)




Apple Computer (NASDAQ:AAPL)








Merrill Lynch (NYSE:MER)




DreamWorks Animation (NYSE:DWA)




The importance of short-term gains
Now, no one is saying that this short-term optimism isn't nice. A 13% gain is a 13% gain. But the question is: Does the short term matter? If 60% of companies beat quarterly analyst estimates, then that's not special. Heck, it's not even above average.

In truth, one quarter doesn't matter one bit. While short-term gains are fun to talk about, the best companies -- think Wal-Mart, which has earned investors greater than 20% annualized returns since its 1970 IPO -- string together years of great quarters. These companies are led by dedicated CEOs, they care about their shareholders, and they often don't give a darn about what the analysts think.

Buy, buy, buy -- and then hold, hold, hold
The key to earning absolutely mind-blowing returns is to buy superior companies and hold them for the long term.

Maybe that's contrary. You don't hear a lot of get-rich hypesters telling you that market-beating investing takes time. Rather, you have folks advertising "faster" and "easier" ways to get rich. A lot of these involve trying to time the market and rapidly trading in and out of stocks -- racking up loads of taxes and trading costs in the process.

But they don't tell you that. They also don't tell you that these get-rich-quick schemes are not sustainable -- that is, if they even work at all.

The Foolish bottom line
Instead of buying into short-term schemes or getting worked up about how your stocks are doing compared to how the analysts think they're doing, be a long-term investor and buy companies you'd feel confident owning even if the market shut down and you weren't able to sell. That's some advice master investor Warren Buffett follows, and I think it's sound.

If you'd like some help finding these types of companies, join Fool co-founders David and Tom Gardner free for 30 days at their Motley Fool Stock Advisor service. The brothers scour the market and use a gamut of strategies to not only identify two great companies every month for members, but also teach members how to find great long-term investments on their own. And to date, their secret sauce has done the trick. The picks are beating the S&P 500 by more than 40 percentage points. If that sounds like a better way to you, click here to learn more. There is no obligation to subscribe.

Tim Hanson does not own shares of any company mentioned. DreamWorks Animation is a Stock Advisor recommendation. Wal-Mart is an Inside Value pick. No Fool is too cool for disclosure.