Earnings Season

At times I receive similar emails from readers. Dave sends the following email to me this morning:

"With the earnings announcements beginning, I was wondering if you could tell me what your daily procedure is for handling this extremely large amount of information. How do you receive the earnings reports (IBD, DGO)? Do you perform a sort of triage (grouping the most promising in one catagory, the next most in another, and so on)? What do you do with the ones that you find most promising? And the last question, how much time per day is spent analyzing the earnings report?"

Great questions Dave. Earnings season is a busy time for me because I have to play two different roles: 1) that of an long-term investor who monitors the earnings reports closely in all of the positions currently owned as well as those on my watch list that I want to own in the future, and 2) as a trader I have to keep watching for opportunities in the reaction of reports that are provided.

Like most traders who have to don two different caps, I tend to spend more time on the former, than the latter. Trading during earnings season is always more difficult, so I prefer to spend more time digging around the fundamentals (looking through the latest reports, running the numbers, & listening to conference calls). At the same time, I am using the data from IBD and others regarding earnings performance as the basis of some of the stock screens I run. For example, I recently created a screen that specifically looks for stocks with expanding profit margins which tends to perform well in this kind of market. I'll use the data I find to figure out where I need to focus my energy and capital. Like trading, I build watch lists and research as time permits.

And, finally, how much time do I spend analyzing the earnings report? Frankly, it all depends on what I'm after. If I think I'm wrong in one of my holdings, I'll spend a lot of time trying to boil down the fundamentals in order to determine if the market's reaction to the report was correct and whether I should sell and move to a competitor. But, as many of you know, with trading I don't pay much attention to the fundamentals. That's why earnings season is a challenging time for those of us who try to incorporate both strategies at the same time along with a heavy dose of information overload.