 Good day, fellow investors. 55% of SAP 500 companies have reported earnings and I always like to dig into them to see what's going on, what sector is doing well, what sector is not doing well and what is the perception Wall Street has about the future. That's very interesting because it shows you how to position yourself and what to take advantage and what to be afraid of. Let's dig into the earnings, let's dig into Wall Street's expectations, estimations and recommendations. SAP 500 earnings grew 4.7% in Q3 2017, which is a good growth rate, 5% growth rate, I would immediately sign for that. However, if you look at the distribution of that growth, the highest growth percentage comes from energy, where earnings have grown at 136% thanks to high oil prices. Information technology continues to grow earnings, Amazon really added to that number, real estate is doing extremely well, stable growth materials of course with oil and increased in commodity prices, health care, consumer staples, slow growth, industrial, industrial's negative growth, consumer discretionary, negative growth, telecom negative utilities very bad and financials are the worst because of the hurricanes and the losses that insurers suffered. So going on to the insurers, they suffered losses and you can see the stock price declining while the hurricanes were hitting the coast and now the stock price is higher. How can that be? 1. The losses weren't as big as the estimates were. 2. And this really shows how one's loss is the other's gain and that's unfortunate. But analysts now expect that thanks to the hurricanes insurers will be able to raise prices and therefore have higher earnings in the future. I don't know if you agree with that but that's how Wall Street works. What's very interesting about insurers is that their stock prices have been going nothing but up since the crisis. So either they are now overvalued or investors overreacted in the 2009 crisis and avoided insurers for no reason in the post-crisis era. Nevertheless, deep market knowledge is needed for estimating such investments. You really have to dig into the risks of what they are insuring. Going back to earnings, now let's look at estimated earnings. Wall Street analysts estimate 2018 SAP 500 earnings to grow at 11.4%. That's a huge estimate. And this positive estimate leads to Wall Street's favorite valuation metric, forward earnings. I bet you see a lot of forward earnings everywhere mentioned what is the forward price earnings ratio, thus using the future expected 12 months earnings. If you listen to my recommended Jack Bogle video, he says that Wall Street likes to look at future earnings because those are usually higher and bring to lower valuations and makes easier to sell a stock with lower valuation. However, he loves to look at past earnings. Let's look at what happened and what is actually here. Not at what might happen in the future and I'll show you why. When I was digging through earnings back in February 2017, the estimated growth for SAP 500 earnings for 2017 was 11.1%. And 11.1% is much higher than the 4.7% that actually happened during this quarter. And you can see here that financial war estimated at 10.2%. Nobody estimated a hurricane. This shows how analysts really always take the past, assume no shocks, are very very positive and then give forward interpretation. You really have to look at analyst's recommendations, mine too, with two grains of salt and really do your own due diligence and be a little bit more pessimistic than Wall Street analysts. Here is why. If you look at the buy and sell recommendations, you can see that they are all skewed to the positive. Just 5 to 6% of recommendations are sold. Selling recommendations should be 50% of the market because 50% is going to outperform, 50% is going to underperform. So you see the yellow columns here? Those are the hold recommendations. So we must think of hold the same as sell recommendations when issued by a Wall Street analyst. Because Wall Street analysts, as I said, are not allowed to be negative. You get fired very soon. The only thing left is them to do YouTube videos. Not surprisingly additionally here, most negative recommendations hold and sell are utilities and telecom services, the ones that had the slowest earnings growth. If you remember our video from a few days ago, Richard Taller said that the losers usually outperform the winners later. So telecom, utilities, low growth, low earnings, declining earnings, the losers will, according to history, outperform the winners. However, analysts are recommending to sell them and buy IT because that's the thing everybody is recommending and I don't lose my job if I recommend what everybody else is doing. That's how Wall Street works. You have to be smarter in the long term to take advantage of that and not to be taken advantage from Wall Street. That's how it works. So to conclude, don't really look at forward earnings. That's just a potential. Look at what happened to insurers and financials. 10% expected and now we have a decline. So really, really try to figure out more in the long term because Wall Street looks at the past few quarters into the next one, two quarters and replicates it over and over again. Nobody looks at what will happen five quarters from now and that's very important and nobody looks at the average number of hurricanes hitting the coast. They just look nothing happened last two years, nothing will happen in the next two years. However, if you try to find the pattern, look at the long term, you can see the average and then you can see, okay, if two hurricanes free come in a row, insurer stocks will be low, then it's time to buy. If there is no hurricanes for a long time, earnings will be high, but it will be probably time to sell. However, that's random walk completely. So even what I said is wrong because it's completely random. Nobody knows what nature will bring. However, you can be smart about investing with such related investments. If you buy when it's cheap and when company won't go bankrupt, you can expect great returns in the future, higher probability of returns. Thank you for watching. Looking forward to your comments and I'll see you in the next video.