If you’ve owned stocks before and observed stock price behavior, you’ve realized how sensitive stock prices are to each successive quarterly earnings report. If the earnings report pleases the investment community, the stock usually reacts favorably and does so to the degree of momentary pleasure derived. The same can be said about the negative impact to stock prices when the earnings report disappoints market participants.

The notion of the “next” quarter is so powerful that you will often witness pleasure reflected in a stock price where the eps is reported for the quarter just concluded and it comes in well below investors’ expectations; yet, company management guides new expectations toward a rosy “next” quarter causing investors to instantly forget the poor showing of the moment and start living on the ragged edge of betting on how actual performance for the next quarter will go relative to the newest set of quarterly expectations. The heavy focus on short-term eps activity makes it very easy to lose sight of what really matters and that is the progress corporate management is making toward building shareholder wealth.

Yes, I believe we are living in a time in the stock market where we are so focused on the short-term that we almost can’t see the forest for the trees, if you’ll pardon my use of a cliche. It creates an unnecessary tension for investors in that you “feel” like you always have to be attuned to the day-to-day company performance rather than stepping back and seeing yourself as invested in a long-term business where time is not working against you.

When it comes to the forest or the trees here, the forest is “wealth” and the trees represent “quarterly eps.” How do I think about what I’m buying when I buy a stock? Am I trying to buy quarterly earnings or a position in a company that can steadily build wealth? The answer to this question gets at whether I’m trying to buy earnings management or wealth management.

Since there is so much emphasis put on earnings management today, some view the stock market more like a casino than an investment option. If the market rewards management to manage earnings vs. managing wealth, indeed, the market takes on a casino-like demeanor and society is endangered, including those who will never personally invest in a common stock in their lifetime.

I’m passionate about teaching the merits of the balance sheet because it is a statement of wealth. Equity is wealth and it is revealed only on the balance sheet. The companies I select must reflect sound balance sheet management; that’s why I first review any company I choose for its balance sheet quality. Companies that are “just” managed for earnings growth often reflect an unhealthy balance sheet as healthy equity is compromised for the “next” quarter’s eps.

Wealth management may not be in vogue today, but its relationship to sound risk analysis in the selection of stock investments will never be diminished by any preoccupation with “the trees.” This post reflects the mindset you find in my book, “Choose Stocks Wisely.”