The busiest week of earnings season is upon us which often means a lot of stock fluctuation, but it’s important for investors to read the fine print.
Ok folks, so as you’ve probably seen at least 5,000 times this morning already, it’s the busiest week of earnings season. We only comment on an earnings call when something very special happens, such as Netflix’s cash-flow announcement last week.
Don’t get me wrong, earnings season can be a great way of figuring out where a company is at in terms of its finances and future plans, but with this busy period also comes a lot of noise.
In a game where ‘doing nothing’ is 90% of the work, noise can be a dangerous distraction.
“Should earnings dictate my investment strategy?”
Nope. Nein. Non. Ne. M hěi.
Quarterly reports have a short-term outlook by nature, which is why, as long-term investors, we tend not to put too much emphasis on the “twelve-week hamster wheel”. This short-term outlook does not give the long-term investor an accurate depiction of how their investment will perform through its lifetime in your portfolio.
Of course, nobody is omniscient — except perhaps Warren Buffett — so you should only invest in businesses that you understand and believe in. By doing this, you are increasing the chance that your portfolio will grow because you’ve actually done your research into the business and understand how it makes money, where its growth is coming from, what the company believes in, and much more. You are also less likely to sell through periods of volatility.
Instead of panic selling (or buying) based on an earnings headline, you can actually take a breath and dive into the report yourself, and hopefully, understand what the numbers behind terms such as revenue and same-store growth mean to your investment.
Of course, there is a lot more to earnings than just revenue growth, and if we were to dive into everything then we’d be changing this newsletter’s name to ‘Slowball’. Luckily, we do have a number of resources available to help with understanding earnings season and all its complexities, which can be found here. If you’re not a MyWallSt subscriber, never fear, you can sign up for a free 7-day trial by clicking the link, and check it out for yourself.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.