Yoshikami: Great Earnings or Depressing Economics? Which Matters?

It's a big week on the earnings front with a slew of financials, healthcare and tech companies reporting.

IBM and Texas Instruments lead the pack on Monday, along with other bellwether companies such as Apple and Johnson & Johnson . It is turning out to be quite a performance from the corporate sector with this quarterly earnings cycle likely to exceed analysts' expectations. (Track your earnings season here.)

But what does that really mean and does it really matter?

The importance of headline numbers and earnings reports all comes down to your investment time horizon. While companies may exceed analyst earnings expectations on a quarterly basis or even year after year, it's only meaningful in the short term if you are a trading investor rather than a "buy and hold" disciple. Granted the investment world seems to have leaned towards a much more tactical perspective when investing (and there's good reason for that shift given the meltdowns we've seen over the last decade), but most investors still focus on the long term by design or momentum.

Which begs the question; should this quarter's results matter as you invest your portfolio?

Remember; the current economic outlook impacts all earnings results whether on a short-term or on a long-term basis. While the recent US stimulus package may have boosted growth, it also covered up problems in the economy. At the end of the day, what is needed is for economic growth to be self-sustaining. The banking industry for example is confronted with that problem right now as the economic stimulus and bailouts are withdrawn. Bank of America reporting lackluster second quarter results directly related to short-term economic conditions is an example of that.

"The recent US stimulus package may have boosted growth, it also covered up problems in the economy..." -President, YCMNET Advisors, Michael Yoshikami

But what about the long term?

With the global economy entering into an age of deleveraging where real estate and consumer debt must be purged from balance sheets, there will be a long-term impact on returns and investment strategy. And over the long term, companies will have to find ways to string together a series of quarters of promising results to convince investors to buy their stocks; just a single quarter of earnings momentum will not cut it.

Perhaps what's best for investors is to adopt a strategy that looks at quarterly results as a way of measuring progress towards long-term earnings growth. Only looking at one quarter or even a series of quarters could very well be misleading if one does not look at the economic conditions, as well as the company's long-term strategic plans to adapt to the more challenging environment of today.

Investors should focus on the long-term but at the same time actively adjust their short-term strategy; recognizing that short-term positioning is merely a subset of what is needed for long-term investment success.

Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.