Moods and Markets: A New Way to Invest in Good Times and in Bad

7. Cooking the Books: Corporate Earnings and Social Mood

For most investors, quarterly earnings are like a dinner at a restaurant. They either like the food or they don’t. Even more importantly, although they may want to meet the chef, few diners ever really want to go into the kitchen to see how the food was prepared, and almost none want to be dragged through the recipe step by step, let alone taken to the slaughterhouse to see how farm-to-table dining really works.

The earnings rule is simple: Just put it on the plate. Don’t make me understand how it got there.

To compensate for this general lack of interest and ability on the part of investors in understanding how earnings are actually arrived at, corporations have adopted any number of “alternative” ...