Earnings Season – Cramer’s wrong, you can make money!

April 11, 2010 - PRLog -- On the brink of an earnings season, a period where most quarterly corporate earnings are released to the public, investors are often hesitant to risk capital for potential potent growth. On CNBC’s ‘Mad Money’ Jim Cramer stated that “it's impossible to make money during earnings season[…]” (see http://www.thestreet.com/_yahoo/story/10722272/1/cramers-mad-money-recap-next-weeks-game-plan-final.html). If the market is driven by speculation, earnings season is a period of time where stocks are most volatile. Volatility implies uncertainly, and uncertainty implies risk. But there is a way to manage risk and protect your capital, while ensuring this time of year is one of your best ‘earnings seasons’ – TimelessWealth.net explains.


Large Corporations, Industry Leaders, or ‘Fortune 500’ Companies, are typically first to report their earnings (for the most recent quarter). Their financials often model how well or how poorly an industry has performed in micro and macroeconomic environments. Based on reported earnings from companies with a large market share in predefined industries or sectors, the market begins to draw conclusions in the form of patterns and trends. Industries expected to perform poorly are discounted and often ‘dumped’ with exaggerated ambition. Instead, traders and investors flock to an industry or sector expected to outperform analysts’ forecast. If you’ve positioned yourself alongside a company explicitly expected to ‘outperform’ forecasts early on, you have a chance at financial bliss. If not, you’ve already missed the ‘run-up party’. So when you find yourself at crossroads as to how to reap the rewards offered during earnings season, consider the following three-step design:


I. Research companies with solid fundamentals. Even if they miss projections, estimates, or forecasts, pick them up when the market does not want them. It may appear counterintuitive, but it fits along the lines of Buffett’s “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. Earnings season and the accompanying reports describing a company’s performance in the latest quarter say little in regards to a company’s outlook. If you strongly believe in a company’s future growth, why not pick it up at a discount?


II. Follow stocks that regularly trade strong volume (the definition of “strong” is subjective to an individual). If the volume isn’t there, the market hasn’t any interest in the company. Stocks trading insignificant volume become a great hazard to investors during earnings seasons. While volatility may be present in this type of market, lack of volume or liquidity will keep traders away. Because Investors and traders are more likely to speculate in a liquid market, picking liquid stocks can significantly reduce capital risk and leverage upside potential.


III. Follow stocks that trade at a certain price or in a defined price range. The market encompasses such a massive line of companies that it is excruciatingly difficult to follow its entirety. Our personal preference is set in tracking companies trading under $5/share, often referred to as ‘penny stocks’. These cheaper priced stocks frequently have a volatile nature about them. This generally means we can procure greater gains in a shorter period of time than if we were to track large-cap stocks. Again, as with volume, price is a subjective limit. It is up to you to define that limit for yourself in order to focus on a particular part of the market during earnings season.


If you’ve ever wondered how investors produce a handful of prospective stocks having started with a list consisting of thousands, now you know. While some will argue that more effective systems than our proposed ‘three-step design’ exist to accomplish our goal, we’ve essentially taken an intimidating process (achieving financial success during earnings season) and broken it down into the simplest of elements. In all likelihood, our process is universal for all traders and investors alike. Sometimes the best of us, the most experienced investors, need to sidestep all the chaos that earnings season drags along with it, and revisit the basics. Remember that it is from the basics that we develop everything that is seemingly complicated. Take our system for a test drive this earnings season and you may find yourself better prepared to succeed than you thought possible!

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About TimelessWealth.net:
Timeless Wealth empowers investors with the confidence and tools that they need to succeed in any given market environment. Timely approaching an investment opportunity may be the difference between building wealth and struggling with finances. Our goal is to transform each and every member into a high net-worth individual through intelligent investments. Resultantly, we are building a stronger, more sophisticated equity market. For more information and to subscribe to our newsletter for overlooked trading & undervalued investment ideas, please visit: http://timelesswealth.net