Today's Time Warner earnings announcement shows the disappointment that results when shareholders expect a corporate strategy and instead get a conglomerate. With TWX down 1.72% in the earnings announcement's wake, the Chinese water torture continues.  How so?

When a corporate strategy is well-conceived and well-executed, there is a strong economic reason for businesses to be under the same corporate umbrella. Simply put, corporate strategy is about creating value by sharing important capabilities across business units. For example, Wal-Mart gets big volume discounts by purchasing in big quantities from its suppliers. Wal-Mart is also good at measuring what items sell in its stores and which ones don't and stocking the shelves of each store accordingly. Wal-Mart's sustained financial excellence results from its ability to share these capabilities across its discount retailing, grocery, and pharmacy businesses. This sharing gives Wal-Mart a sustainable competitive advantage, keeping its costs below its competitors.

By contrast, a conglomerate holds a diverse collection of businesses among which there is very little sharing. The ostensible reason for the businesses being under the same corporate umbrella is that the different businesses can predictably offset each other's earnings cycles. When one business is down, another one is up and vice versa. The net effect is to smooth earnings.