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Using Earnings Overreactions As A Strategy

|Includes: AABA, AAPL, AOL, CAT, CSCO, DVMT, FB, GOOGL, IBM, LUV, MSFT, NFLX, ORCL, The Procter & Gamble Company (PG), QCOM, ROST

With a recent column, I looked at the recent overreactions from earnings season. Which appear to be offering attractive opportunities.

Here's an outtake:

I've long thought that investors could use short-term overreactions in stock prices to dollar cost average into great companies. And there's a precedent for this.

The notion of investing in stocks after large moves after earnings has been around since 1968, when the idea was first discovered by Raymond Ball and Phillip Brown. Since then, there's been a number of white papers and academic studies produced confirming the anomaly.

The recent of the column goes on to highlight some companies that were sold off hard, including Microsoft (NASDAQ:MSFT), but are still strong.