This weekend I ran across a very interesting article by Eric Miller at Bankstocks.com. The downfall of AIG reminded Miller of a past article that discusses “the beautiful line”. The beautiful line occurs when a company generates smooth, consistent earnings over long periods of time.
It is extremely difficult to generate incredibly consistent earnings over a long period of time. Miller lists several reasons why this is. Since I’m often looking for companies with smooth and predictable earnings, this article was a bit of a wake up call to me. I need to remember that earnings that seem too perfect to be believable maybe should not be believed.