The largest institutions on Wall Street put a big emphasis on quarterly earnings.
As some of you may have experienced, owning the stock of a company that misses an earnings number results in a dropping stock price.
Depending on the magnitude of the miss, losses of 20% to 40% in a single trading session are quite common.
If you extend your time frame past a three or six-month period, quite frequently the stock price recovers, as long as business results improve.
In my view, the important consideration for investors is whether or not the earnings slump is temporary or permanent.
Deeper Look
Taking the time to learn and understand what are the important drivers causing the poor results and why those factors may improve is crucial.
In fact, taking the time to digest a company’s business context circumstances might lead you to conclude you are staring at a huge opportunity.
One only has to look back a year, when the equity market was down 35% in two weeks at the start of the Covid-19 pandemic.
Takeaway
In my opinion, wise investors clearly understood there were bargains to be had if you could get past the fear which dominated investor sentiment.
A long-term historical and factual approach to investing allows you to look beyond the pricing gyrations that can sometimes dominate a market, one laden with emotion.
Equity prices swing dramatically and can do so very quickly. Keeping your eye on your investment’s true potential is the key point.
Photo Credit: Pictures of Money via Flickr Creative Commons
