It is earnings season once again. The four times a year that the market weighs in on the perception of the markets. Is it good news, bad news or bad news with a silver lining? The season always starts with Alcoa (AA) and moves on from there. Perhaps there is a micro perspective and correlation between AA and the tone of the season. More likely, I would suggest that it’s the tone and sentiment of the markets that decide weather or not the next season’s results will shape up to be bullish or bearish. It seems that the market feels that current earnings are so yesterday.
Enjoy the season for the first quarter always seems brighter since the results come in spring, the eternal optimistic season of growth and renewal. Generally the markets will set our sights on the next economic cycle.
We have identified a few things form our experience to assist you in focusing on the big picture:
1) Every season brings a few absolute
blow-ups. Deal with it and hope that
when your companies announce the chamber is empty.
2) The market can make excuses to rationalize
a mediocre quarter with the hopes of better things to come. Again, hope the chamber is empty when it gets
to your holdings.
3) The earnings hurdle based on year over year numbers is so low at this point in the economic cycle that my puppy could
probably make it over the bar.
4) Look for opportunities. It never looks good at the bottom. I was
taught a long time ago that “Airplanes on the cover of business week means it
is too late. You want to own them [stocks]
when it is dark and grey”.
5) Be careful, and think about the big
themes and the reasons you own what you hold. If it is based on solid fundamentals, growth
and long term concepts, hang on for the ride (good or bad). If on the other hand you own stocks for a ‘quick
trade’ without much knowledge once again hold on – only this time hold on to
your shorts.
6) One additional thought: New management always gets a quarter or two to rid the company of the dirty laundry without going to the penalty box. If a company has a new CEO (especially in a recession) recognize that the earnings are going to look awful and that next season the bar will have moved even lower and unless the company has serious systemic issues, the opportunity to buy is probably strong.
Overall we are pretty optimistic going forward but the road will not be smooth. Keep us posted on your progress and your own tools to survive.
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