It is widely rumored that Apple will be announcing its new iPad Mini in the next week or so. To anyone who’s followed Apple and its stock performance this really should be of no surprise. Apple, to some extent, is leveraging what is commonly referred to as Earnings Season to help boost the product launch. Much like the widespread speculation that has surrounded the launch of the iPad Mini, there’s commonly speculation that surrounds Earnings Season for many companies. The question is though how does Earnings Season impact you and me?
What is Earnings Season?
Boiling it down, Earnings Season is when publicly traded companies announce how they’ve done in the previous quarter. They share such things as how much money they made the previous quarter, how much they spent, if they foresee any new product launches and possibly if they see any changes to what will happen in the future. Often times, they’ll hold conference calls in which stock analysts will ask them questions related to the companies announcements. As you can imagine, the information provided during Earnings Season could possibly provide a wealth of information.
Just like there are four seasons in many climates, there are four seasons in the investment world. The Earnings Season takes place in January, April, July and October. So, as I am writing this post we’re entering the throws of the final Earnings Season of the year. Additionally, when they announce in January we’ll see just how strong the Christmas shopping season was for retailers. Many economists will also take what they learn during Earnings Season to predict what they think the economy will do in the future.
How Companies Use Earnings Season
Much like a high schooler wants to look their best at the school dance, so do most companies like to look their best during Earnings Season. But, under all that makeup and Clearasil lies the naked truth. The fact is that many companies can put out misleading information with the hopes of affecting stock prices in some sort of fashion. They can also say that they’ll make a certain amount of money previous to the announcement, only to blow it out of the water when they make their official announcement during Earnings Season. Apple is infamous for supposedly engaging in this practice. They’ll state that they’re going to make one amount, only to beat it by a significant amount in their official announcement at the end of the quarter. If a company does beat their estimate by a significant amount, then they can usually expect the stock price to rise quite a bit. On the flip side though, if they miss their estimates they can drag down stock prices.
What Impact Does Earnings Season Have on Your Investments?
The focus you put on Earnings Season really depends on the type of investor you are, as there can be serious swings in the stock price in the days surrounding the official announcement. If you’re a buy and hold investor then it won’t have much impact on you, unless the company announces that the CEO has left town and has moved to the Cayman Islands because they’ve pilfered millions of dollars from the company. But, if you’re a more active trader then you’ll be watching it closely. Then, there’s the third group of people…geeks like me who enjoy hearing all the news. Seriously though, Earnings Season can provide a wealth of information if you know what to look for and assuming the company is transparent in their reporting. Assuming that this is true and you just do normal stock investing, then it really will have no major impact on your investment philosophy. There is much information to be had during Earnings Season. Some good, some not so good. The key is to stick to your investment plan and not make any emotional decisions regarding your portfolio.
Is this the first time you’ve heard of Earnings Season? What are your thoughts if it is? Will you be buying the new iPad Mini?
Photo courtesy of: Svilen Milev