In response to my post, "Yahoo!'s earnings message: "This is no market for investors," I received an e-mail from a Dow Jones reporter: "Hello, May I ask a question? Your headline says: "Yahoo!'s earnings message: "This is no market for investors". Provocative, but I don't see an explanation of why in your note. Could you tell me what's behind your sentiment."

Here's an answer to the question: We are in a "beat and raise" market which puts the average investor at an insurmountable disadvantage to institutional investors.

Each quarter, in order for an investor to make money, a company must beat Wall Street earnings expectations and raise guidance. Each quarter that a company actually beats and raises, Wall Street bids up the company's stock market valuation and raises its expectations for the next quarter. But eventually, the company runs up against problems that make it unable to keep beating and raising – and the stock market slams the stock. The market's reaction to Yahoo!'s earnings is a case in point.

I think the factors that would cause an investor to lose money in stocks in general outweigh the factors that would cause them to make money. The main negatives are economic trends I've cited in previous posts – rising energy prices, indebted consumers and government, declining housing market, uptick in adjustable rate mortgage payments, unpredictable new Fed Chair, global political instability. The recent performance of the S&P 500 suggests a downward trend – fueled by many of these factors.

But to me the thing that makes this "no market for investors" is the quarterly "beat and raise" mentality which is particularly pervasive with stocks that receive wide analyst coverage.

The average "buy and hold" investor is at a huge disadvantage in this kind of stock market. The investor does not know all the details of Wall Street expectations and therefore is unable to interpret quarterly earnings results. The average investor does not do channel checks and does not develop contacts with a company's managers, customers, suppliers, and distributors to get a feel for how the results will play out. Therefore the investor is inevitably blindsided by reported results and guidance.

I think the market's reaction to Yahoo's earnings announcement last night is a great example of how those factors play themselves out.

A more sophisticated investor might build a decision tree to estimate the odds that a company would beat and raise in a particular quarter. The sophisticated investor might buy calls in proportion to the estimated odds that the company would beat and raise and buy puts in proportion to the odds that the company would fail to beat and raise.

This is not something that the average investor would do, though. So I think money market funds are a safer bet -- particularly in light of this morning's inflation report which is likely to create added pressure for the Fed to raise short-term interest rates.

I am neither long nor short shares of Yahoo. For more about me, click here.