During April many companies reported quarterly profits for the three months ending March 31, 2010. The results were overwhelmingly strong. With about two-thirds of the companies in the S&P 500 Index having reported their results as of April 30, 2010, 78% beat analysts’ estimates. Furthermore, they beat them by an impressive 16.3% on average, according to The Wall Street Journal. This trend of relative outperformance of actual earnings vs. estimated earnings is on track to be the highest since 1994. More specifically, excluding financials, earnings growth was up 35% in the first quarter, up from 18% growth in the fourth quarter of 2009.
Many have questioned whether profits were growing solely from cost-cutting because it is more important to have profits driven by revenue growth. Fortunately, nearly eight in ten companies reported revenue growth. In fact, revenues are expected to be up about 11%, even more than the 8% revenue growth in the fourth quarter.
Looking forward to the second quarter, 36 S&P 500 companies already have issued positive projections vs. 29 negative projections. Negative projections normally outnumber positive projections by a 2-to-1 margin, so the greater number of positive projections is significant.
One of our four core investment principles is managing fees and expenses.
Mutual funds incur trading costs buying and selling securities, including commissions. More importantly, trading costs include a price spread between bid and ask prices and market impact when buying or selling a large number of shares. We are pleased to report that Dimensional Fund Advisors (DFA), one of the mutual fund companies that we use the most, recently conducted a study of their trading costs between 2007 and 2009 wherein they examined 1.3 million trades. Because DFA uses a flexible strategy to buy and sell at the best prices (one of the reasons we recommend their funds) compared to traditional trading strategies, they found that their flexible trading strategy generated a 0.60% to 0.80% improvement in trading costs. Fun Fact: Lower costs=higher returns.
As always, your trust and confidence are important to us and we appreciate the opportunity to serve you! Please contact us with any questions you have.
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