What is Earnings Season?

Earnings season happens every quarter, and it’s make-it or break-it time for many companies.

The weeks following the end of every fiscal quarter are known by investors as earnings season. This is when companies release their financial reports for the previous three months, and when investors get to see a company’s earnings. 

You can’t really prepare for earnings season because you can’t predict earnings— a stock’s reaction is mostly a roll of the dice. That’s led to lots of surprises and lots of big stock gaps both up and down. Of course, with volatility comes opportunity, for both profit and loss.

The way earnings season works is that investors compare companies’ results with the “consensus numbers” (an average of the estimates of all the analysts who are following that company). If a company is supposed to make a nickel per share but makes six cents, that’s a beat. Everyone’s happy. If revenue was supposed to top $200 million but the report says $199 million, that’s a miss. Nobody’s happy.

There are a few ways you can handle earnings season:

1. Ignore earnings reports, and just buy and sell as you normally do. In the long run, this is likely to produce your best results, as good companies in good market environments will, more often than not, react well to their earnings.
2. Sell part of every growth stock you own before it reports earnings. Believe it or not, this is a decent half-way measure … if you’re running a concentrated portfolio. 
3. Sell most or all of the shares of a stock you don’t have much profit cushion in.

One last option on the buying side is to stay away from volatile stocks during earnings season. That’s more like gambling than investing.

To learn more and to find out which stocks are most likely to help you weather the market without too much stress, download our free report, 10 Forever Stocks to Buy Now – and How to Find the Best Growth Stocks.