| Tech darling Broadcom (Nasdaq: AVGO) is a great example of the pitfalls of blindly following earnings. Ten years ago, not many people were paying attention to this chipmaker. Profits swung to a net loss of $1.7 billion in 2016 and continued to bounce around over the next several years. If you were only focused on earnings, you might have bailed in 2016 when earnings went negative... or in 2019, when they fell by 78%... or last year, when they dropped by 58%. You would have missed out. Bigly. Over the last 10 years, an investment in the S&P 500 would have more than tripled. Over that span, $10,000 would've turned into $34,549 with dividends reinvested. A $10,000 starting stake in Broadcom would have turned into $339,986 with dividends reinvested. The price appreciation alone would have been worth $195,727. Don't get me wrong - I like earnings. I also like ice cream. But both are not that important to me. There are other indicators that tell me whether a company is worth investing in. If certain metrics aren't trending in a positive direction, I'm not interested, regardless of what earnings are doing. In some cases, I actually like when earnings are negative, because chances are most investors have passed over the stock. Be sure to add some more indicators into your toolbox other than earnings. It will greatly improve your investing performance. Good investing, Marc P.S. Not sure what to use instead of earnings? Check out my new video on the most important indicator I look at when I'm evaluating a stock. Warren Buffett says this metric is what determines a stock's true value... and I couldn't agree more. Watch my video to get all the details. |
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