This is the best part of stock market investing for me. The earnings season that is. It gives you something tangible to digest, think about, and act upon.
What you'll learn:
⓵ How do you prepare for the earnings season?
I always try to have my expectations set well before the earnings. The best time to set your expectations is right after the previous earnings season.
By doing so, you know what you are looking for well in advance, so you don’t get distracted or scared away right before the next earnings report comes out (it’s also midnight where I live by the time the report comes out, so I need to know what I’m looking for and act accordingly — access to after-hours trading is crucial).
⓶ Do you sell your stocks going into the earnings season (or stay fully invested)?
I personally don’t understand the thinking of selling right before earnings in fear of the company not delivering solid results (though more reasonable during a bear market where nothing goes unpunished).
Yes, this period we are in where everyone is edgy, and stocks sell for no particular reason (other than not delivering outstanding results) then you might say that this is justified.
But if you are not sure of what you are holding, then why wait until the earnings? Sell it well before or don’t even buy it in the first place (unless you are good at market timing — I’m not).
I personally believe that if earnings seasons scare you away then maybe you are in the wrong game. Or in the wrong approach.
Index investing is no joke. If you can’t sleep because of portfolio concentration or because you overthink your holdings, then switching to a different approach might suit you better. Just because you landed on this blog, it doesn’t mean that you need to adopt the principles. Everyone is different.
Personally, I want to be able to sleep well at night. Every night. However, I just love this newly found (for me) game of investing.
And I really like investing in solid businesses (even if I don’t know everything — that’s the point of learning I guess, right?). So, I stick to it and try to improve along the way.
⓷ Is easy access to info beneficial or not to investors?
The problem with investing (or trading) decades ago was that access to info was a lot more difficult. Now, the opposite is true. Does it make the earnings season easier to predict? Maybe.
Does it matter if you act on every single piece of info? Maybe. I already have 1 full-time job (and 1 part-time too) so I can’t spend much time glued to my screen. I’m neither a day trader nor a full-time investor.
I also have trouble comprehending the idea of something is already baked in. Nothing is ever priced in. Otherwise, we wouldn’t have stock price movements. Just a flat price line that would only be derailed by major events and then maintain its steady course.
We need to remember that not everyone invests/acts the same way. If for example, a company is dropping growth and the price declines, it doesn’t necessarily mean that everyone sold out.
There are plenty of people still waiting for another quarter maybe with the hope that the company accelerates. If that doesn’t happen more people would sell. So, the price would drop even more. Not everyone is acting exactly in the same way and/or at the same time.
I also don’t agree that we let stock price movements change our thesis. Some stocks go up or down, but investors act differently. Yes, price movements sometimes confirm a result. But some other times it is just out of whack.
This is why you need to know what you own and why. And set your own expectations. And you need to remember that different allocations weigh on you differently.
You can play around and see your own limits (personally I’m trying to stay within 10–20% for most of my positions).
