Monday, April 11, 2011

Strategy for earnings season

This is from a post I wrote last year detailing my strategy for earnings season. With earnings season upon us once again, I thought it might be useful to revisit this post.

Do keep in mind that it is the earnings season and the big guns start reporting today onwards with Intel reporting after hours. Any surprises and all the technicals get thrown out of the window. I know (and hope) that this is stating the obvious but please do see when a particular stock is reporting before getting into it. Also, do remember that what is important is not the news itself but the reaction to the news. It is very common to see a stock beat the street estimates easily and still fall down hard and similarly, a stock can easily rally on "bad" news.

I personally don't like holding any stock through its earnings. I feel that no matter how much one thinks one knows about a stock, holding a stock through its earnings is basically gambling. A bad reaction and one might not even get a chance to get out with a small loss. If you are great at studying the fundamentals of the company and the particular industry, you will be justified the argue the validity of this point here but again keep in mind, that a stock can fall down hard even on an earnings beat. If you are like me, you will just enjoy the action from the sidelines!
Take care and good luck!

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