Earnings surprise

US investor and professor [and "father of value investing"] Benjamin Graham once famously said, "In the short run the stock market is a voting machine but in the long run it is a weighing machine."

Certainly, sentiment can be a powerful driver of short-term stock market returns. But ultimately what truly matters over the long term-what actually gets weighed-are fundamentals such as book value, cash flow-and specifically, earnings.

It is right to focus on company earnings of course, but the level of delivered earnings growth is less important to the market than any actual surprise in growth-the amount by which a company surpasses, or disappoints, relative to expectations.

Fundamentally, we strongly believe in the importance of earnings surprises-analysis of which can help explain stock returns and, as such, it is a vital area which investors should pay attention to.