Quote:We’re often told that a key to successful investing is to focus on the big picture and tune out the noise. While this is true, the problem is we rarely hear the other side, i.e. the things that matter. It’s easy to say “that’s noise” or “that’s priced in” but those usually come from zero solution people; people that identify a problem but don’t offer a solution. I want to share a few things that I view as important.

1) The daily price fluctuation of stocks is mostly noise, however there is a really simple way to focus on the general direction a stock is heading- a simple moving average. Just by looking at this line we can tell whether a stock is in an up trend, down trend or without a trend.

2) A single earnings report is not the be-all and end-all, however there are things you can look for that are important. The quality of earnings is crucial to a healthy business. Management has a plethora of tools at their disposal to manipulate earnings so it pays to do a little detective work. Cash flow and accruals don’t lie. You want to see accruals as a percentage of earnings going down, not up.

3) Nonfarm payrolls is probably the most watched economic report and is the poster child of “that’s noise.” However, the importance of job creation cannot be overstated. So while a single data point that is subject to multiple revisions has limited importance, the direction of the longer-term trend certainly matters.

4) Insider selling is largely meaningless. It’s impossible to know why they’re selling and shares are a big part of executive compensation these days. Big insider buying is a much better indicator of how an executive feels about the price of their companies stock.

5) Buybacks are noise. Companies have a long history of buying back stock at expensive valuations and then issuing shares as their stocks get cheap. If you have to focus on buybacks, look at net buybacks which is the amount of shares a company is repurchasing vs how many shares they are issuing.

Be wary of those who are dismissive of everything. It’s far easier to poke holes than it is to offer something of value.