SHOULD YOU BUY STOCKS DURING EARNINGS SEASON?
First of all, what is the stock market earnings season? Just like the seasons of the year, there are four earnings seasons in the stock market and they are January, April, July and October. Those are the months when the largest number of companies report earnings within a close time period.
Every publicly traded company on the New York Stock Exchange has to report earnings four times a year (quarterly). Not all companies have the same exact quarters though, so there is reporting done every month throughout the year. Those particular four months are when the most companies report.
Earnings season is the most anticipated time for anyone who buys stocks and/or makes their living from the stock market. That is when the speculation ends and everyone gets to see for real what is happening with a company. A companies earnings are just like a child’s report card: the child can’t spin the truth anymore and the parents get to see what grades they are really getting. The same with earnings reports that show how well or poorly a company did numbers wise.
Earnings season can be a tumultuous time in the stock market. After all, stocks move on news and earnings are the most important kind of news investors can get. The stocks that report during this time can see pronounced movement either way depending on how they did and what they say about the future of their companies.
Take as an example the stock Netflix. This is a high flier that has exploded over the last year rewarding any investor who owns it. They came out with excellent earnings on April 25th after the market closed but the stock is DOWN over 22 dollars the day after as I write this. Why? Because while investors might have liked their current earnings, they didn’t like the what the companies officers said about future quarters. In other words, they were not as optimistic as investors wanted them to be about the company going forward. Netfilx has gone up so high so fast that investors needed to know things will continue to be “spectacular” and not just “good”.
This is the risk of buying stocks during earnings season and not knowing when companies report. Every stock you are thinking about buying might move up or down like this before or after earnings come out. If you don’t know when earnings are for your company, you might get caught in this kind of stock movement that you didn’t anticipate.
I have made this mistake before. I can’t remember the particular stock but I bought some shares on a Monday morning not realizing that the company was going to come out with earnings that afternoon after the close of the market. Unfortunately for me, the earnings report was mediocre and the next morning the stock was down 5%. Now, had I known that earnings were going to come out later that day, I would have never bought the stock and waited to see what happened. A rookie mistake for sure.
Of course the earnings could have been great and the opposite might have happened where I would have made 5% instead of losing it. But for me, I would always rather know when earnings are due out BEFORE I buy a stock so that I don’t find myself losing a lot of money overnight.
Anyone who actively buys and sells stocks should pay attention to these earnings announcements and know when they are scheduled. It just makes sense to know what is happening with a stock and not get caught with your pants down like I did that one time!
