The goal of active investing is to outperform the overall market. However, realistically, few investors are able to achieve this on a risk-adjusted basis over the long term. This is why passive investing and index mutual funds are so popular. Benjamin Graham understood the plight facing investors and put forth the idea that the only way to beat the market is to have a sound theory and then to have opinions and projections that are not only correct but also different from those of the market.
Even if you have a solid long-term investment approach, the market’s focus is sometimes more short-term in nature. Specifically, stock prices can move wildly during earnings season if a company exceeds or misses its quarterly “number,” or earnings estimate. Short-term expectations play a key role in determining if a stock’s price “gains” or “loses” when a company reports its actual earnings.