The banks have gone, the big dogs are up next, with Netflix and Tesla showing us their Q3 figures next week.
However, with this earnings merry-go-round also comes a lot of noise, and in a game where ‘doing nothing’ is 90% of the work, noise can be a dangerous distraction.
“Should earnings dictate my investment strategy?”
I’ve said it before, I’ll say it again:
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”. It 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 and understand how your favorite businesses make money, where their growth is coming from, what they believe 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.
Editor at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.