Buying after bad earnings

[The_Krakenite]

Buy strong companies after they have a dip because of bad earnings qt.

This is a viable strategy, and followed by many value investors. There is also plenty of evidence that has proven that markets tend to over-react to even slightly negative news. You can have a GOOD earnings call, but just because the target was off by a penny from what some big bank predicted, holders tend to cause brief sell-offs first, then ask and re-evaluate their move later.

This over-reaction is one of the many arguments that was used to disprove EMH.

It's one of the big advantages also to the 'little guy'. You can exploit this quicker and at better price targets than the bigger guy. Even when the 'Big Guy' starts to dump or trim off stock ahead of anyone else, he can't dump the stock at the target he wants because he will be dropping his ask-price as he sells it off.

 

[GotherL]

It can work but you still need to be very selective.

If you just bought every s&p 500 company after bad ER you will get toast.

Timing will be difficult as well. It can fade off ER for a number of days to weeks.

 

[easymon1]

Very bad idea unless you think the miss was due to a one-off issue. But this requires qualitative analysis of the company.

How much time and effort would something like that take? What is involved specifically?
If the inital quick and dirty shows no hope for the system, if the scan is able to disprove any profitable expectations for the parameters tested, then it's on to 'next case'.

 

[easymon1]

buying just after earnings

A guy could throw various lag times in there.
A guy could factor in the overall market conditions if the IBD O'Neil credo is true that '30% of a stocks performance has to do with the overall performance of the sector it belongs to.'
Once the data is there, the permutations can be tested fairly easily it would seem?
How much does the data cost in very round numbers? $10, 100, 1000?
What specifically is required in the data set?

 

[lindq]

A guy could throw various lag times in there.
A guy could factor in the overall market conditions if the IBD O'Neil credo is true that '30% of a stocks performance has to do with the overall performance of the sector it belongs to.'
Once the data is there, the permutations can be tested fairly easily it would seem?
How much does the data cost in very round numbers? $10, 100, 1000?
What specifically is required in the data set?

You can't make general statements regarding the viability of trading around earnings reports.

There are an infinite number of input variables that are particular to a report and company in that timeframe and under those specific market conditions. Each situation is completely unique, and you'll never get ahead trying to roll those dice.

 

[easymon1]

You can't make general statements...you'll never get ahead trying to roll those dice.

Who wants to roll dice? Not me.
My approach is to try to disprove a theory by the easiest possible method before going beyond a quick and dirty fly-over of the territory. To avoid the territory altogether is an approach too, yes.

 

[Monobrowtrading]

Very bad idea unless you think the miss was due to a one-off issue. But this requires qualitative analysis of the company.

If it’s a one-off, the selling will usually be absorbed. Best to trade momo stocks. Buy high and sell higher.

 

[longandshort]

How much time and effort would something like that take? What is involved specifically?
If the inital quick and dirty shows no hope for the system, if the scan is able to disprove any profitable expectations for the parameters tested, then it's on to 'next case'.

Depends on how much experience you have doing this, how fast a reader you are, and if you know where to find the info. I usually need about < 30 min if I’ve already researched the stock.

You typically need to read the company’s prior earnings release + 10-k MD&A to get an idea of what’s going on (and not just hearsay or gossip lol). Then, you’d want to read sell side research to learn where the street is and what their expectations are. You can then build a basic model to figure out the market implied EPS, and compare it with 1) guidance, 2) street estimates, and 3 your own view.

 

[Cabin111]

You were probably looking at my posts. The thing you need to keep in mind is I am a value INVESTOR. I look for industry leaders (who have an edge; McDonalds, Microsoft, ADM). These are ones who have held market share for 10 plus years. Also there are no signs of them losing market share in the future. If it's a one-off quarter, then mutual funds, retirement and pension funds will see it and buy (adjust accordingly), after the drop. I am also 66 1/2. My investment strategies are far different from when I was 30...Shorter time period to take major loses (widow and orphan type companies).

For me, it is to preserve and grow capital. There is nothing wrong with this process. If you are younger, you probably want to pursue a more aggressive style (different types of investments). I use to flip houses and properties. Does it make sense at my age and in this housing environment?? No, I am out of my league and it would be hard to be on top of my investments.

I have made good money in what I have done over the years. I've bought Apple 3 times (several different eras)...Optioned them (covered calls) and made money all three times. I have also bought GM at about $44...Did a covered call, the sold the stock for $1. before the government walked it into bankruptcy.

Study, learn, back test...Eyes wide open.

 

[Clubber Lang]

Odds are in your favor. And Bank of America being bankrupt, the chances of that is pretty slim to none.

In 2008 they weren’t.
GM, Wachovia, Countrywide, IndyMac, etc all went under.
BAC would have too if not for the government rescue package for them and the other “too big to fail” institutions.