It sounds dramatic doesn’t it, and earnings season can indeed be that. This is the time of the year when various companies release their earnings reports. These reports look back on the previous three months and reveal how well – or badly – each company did during that time.
Needless to say, earnings season is a major time of importance for many people. Up until the reports are released, we can only speculate on how well a particular company is doing. And if we hold shares for that company we may see them fluctuate before and during earnings season, depending on what their actual results are compared to their estimated ones.
For example if a company is predicted to have done badly during one quarter and the results reveal that they have actually done better than that, their shares may receive a welcome boost as a result. Conversely if things are expected to have gone well and the results show they haven’t, the shares may well take a dive instead.
This is particularly true of the leading names in a particular industry. There will always be a lot of interest in the top companies and as a result of this certain predictions will be made of their probable results. If the estimates are far wrong then this will have an effect on the value of their shares.
If you buy and hold your shares for a long period of time, as many investors do, then you shouldn’t worry too much about the information that comes forth in earnings season. Every company goes through peaks and troughs and they usually level out over time. The time is more important to you if you buy and sell shares on a regular basis. If this is the case you may wish to evaluate estimates before the actual reports come out. This could influence your decision on which shares to hang onto and which ones to sell.
Be aware though that estimates are just that – estimates. They are not actual figures and as such you may end up making a poor investment decision if you act on estimates alone. Many people believe that earnings season, while interesting, can lead to knee jerk reactions on which shares to buy and sell. This can be a bad thing and making any decisions based solely on the information released at this time could backfire.
Disclosure: No positions