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Be skeptical about earnings estimates

Even if you're just a casual reader of the business pages, you know that it's often big news when a company releases its earnings estimates. But, as an investor, you need to be very careful when seeing these initial estimates - they may not be telling you the whole story about a stock.

To begin with, companies are optimistic by nature; if they don't predict that they're going to do better than last year, not too many people would buy their stock. But you have to keep in mind that these earnings estimates are just that - estimates. Every company faces unknown variables between the time it issues its estimates and the time it releases its actual earnings. For example, unexpected increases in ...

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