What ever you do, don't
congratulate yourself too much or
berate yourself either;
your choices are half chance --
so are everybody else's.
-- From Advice, like youth, probably wasted on the young by Mary Schmich, as made famous by Baz Luhrmann

This earnings season is starting off better than the last one, with more positive earnings surprises and fewer outright misses than back in January. But the difference might be smaller than you expected. And it will probably always stay that way.

Waddya mean? I need proof!
Take a look at the proportions of earnings misses and surprises last quarter, the quarter before it, and the last couple of years:

 

Surprises

Misses

"Hits"

Q1, 2007

63%

23%

12%

Q1, 2008

59%

28%

12%

Q4, 2008

57%

33%

10%

Q1, 2009

54%

37%

10%

Data from Briefing.com, comparing reported results to Thompson First Call estimates.

As you can see, we got more "misses" and fewer positive surprises in the midst of a full-scale recession than we did in Q1 2008 (when the bad times were just getting started) or in Q1 2007 (when the good times still rolled).

What's more surprising, even with the benefit of 20/20 hindsight, is that more than half of the reporting companies outperformed their analyst-given targets last quarter. Sure didn't feel that way at the time, did it?

How did that happen?
There are reasons for this disjointed feeling, of course. For one, estimates are often pretty conservative and easy to beat: Apple (NASDAQ:AAPL) is notoriously cautious in its official guidance and has beaten Wall Street's expectations every quarter for seven years running. Coca-Cola (NYSE:KO) has never missed an analyst consensus target since First Call started tracking the stock in 2001.

It's a win-win-win strategy: Management feels good, analysts don't look embarrassingly optimistic, and stock prices generally go up when you beat earnings estimates. But how useful is a lowball target to us investors?

But it doesn't necessarily mean that everything is hunky-dory; witness Coke's roller-coaster stock chart in the eternal struggle with PepsiCo (NYSE:PEP), for example.

One size doesn't fit all
Guidance doesn't work wonders for everyone, though. Texas Instruments (NYSE:TXN) updates guidance twice a quarter to keep analysts on the straight and narrow -- but it fell short of the twice-baked targets twice in the last year anyway. Maybe TI should just stop playing that cat-and-mouse game and go the way of Google (NASDAQ:GOOG) instead; with no official management forecast as a crutch, analysts set a beatable target for the search giant in five of the last eight quarters.

Wait, you're measuring four quarters against eight!
Yeah, I'm comparing apples to kiwis here. And that's what the whole estimates game is all about, too.

Here at the Fool, we don't put much faith in analyst estimates, in all their arbitrary, silly splendor. They may be useful for measuring the pulse of the financial experts on a particular stock, but that's about it. When the average estimate is correct about once in 10 tries, it seems insane to take it as gospel and invest your hard-earned money accordingly. You're much better off doing one (or more!) of the following:

  • Learn a little about fundamentals and do your own thinking. When I saw the rock-solid balance sheet of Taiwan Semiconductor Manufacturing, along with its proven ability to make a profit during hard times, I just knew I had to own it.
  • Get expert advice that goes beyond an anonymous and mostly meaningless number. Our own Motley Fool Rule Breakers newsletter pointed me to Intuitive Surgical (NASDAQ:ISRG) three years ago with a clear explanation of what makes its robotic surgery so profitable. It's the best performer in my portfolio by a wide margin.
  • Hear what investors like you are thinking about the stocks that tweak your curiosity. Norfolk Southern (NYSE:NSC) missed the Wall Street target this week, but CAPS member Podnificent thinks that the worst is over for the railroading giant: Shipping volumes have bottomed out, and "this company is probably better positioned than they've been in a long time for operating lean and nothing but getting better ahead." Every CAPS call on Norfolk Southern since that miss has been a positive "thumbs-up" signal.

Any or all of these strategies make more sense to me than relying blindly on analyst ratings and estimates. Hoist your own sail and leave the Wall Street crowd behind. Your portfolio will be better off for it.

And hey -- don't forget to wear sunscreen.

Google and Intuitive Surgical are Motley Fool Rule Breakers recommendations. Apple is a Motley Fool Stock Advisor pick. Coca-Cola is a Motley Fool Inside Value pick. Coca-Cola and Pepsico are Motley Fool Income Investor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Google, Coca-Cola, Taiwan Semi, and Intuitive Surgical, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like. The Motley Fool is investors writing for investors.