Reliance on the earnings estimates of experts can range from blind faith at one end of the spectrum to reasoned faith at the other end..
Even if an investor knows the difference between either cash flow or "free" cash flow, however defined, and true long-term economic earnings, and even if an investor accepts the operating definition of earnings used by experts, the acceptance of their estimates of earnings and growth in earnings constitutes an act of faith.
Is faith in speculation about future earnings more, or less, reasonable than faith in appraisal of today's value?
Forward-looking statements about capital spending plans, R&D projects, share (re)purchase programs, and other uncommitted contingent activities find their public forum in press releases that are carefully worded to avoid class action lawsuits by disgruntled shareholders.
The important point is that growth per se does not always create value for the common stock owners. As John Burr Williams wrote (1938: 419): "That a non-growing industry can be profitable is shown ... , and that a fast-growing industry can be unprofitable is shown ... "
Even if an investor knows the difference between either cash flow or "free" cash flow, however defined, and true long-term economic earnings, and even if an investor accepts the operating definition of earnings used by experts, the acceptance of their estimates of earnings and growth in earnings constitutes an act of faith.
Is faith in speculation about future earnings more, or less, reasonable than faith in appraisal of today's value?
Forward-looking statements about capital spending plans, R&D projects, share (re)purchase programs, and other uncommitted contingent activities find their public forum in press releases that are carefully worded to avoid class action lawsuits by disgruntled shareholders.
The important point is that growth per se does not always create value for the common stock owners. As John Burr Williams wrote (1938: 419): "That a non-growing industry can be profitable is shown ... , and that a fast-growing industry can be unprofitable is shown ... "
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