Are you nervous about the unknowns of investing in stocks?
You aren't alone if you answered yes. Uncertainty is a major cause of stock market jitters.
Four times a year, companies report earnings from the previous quarter. These reporting months (sometimes called earnings season) happen in January, April, July and October.
As these reporting periods approach, stock investors become nervous that major companies may not meet the expectations of major institutional investors such as mutual funds, pension funds and so on.
If major institutional investors begin dumping a stock(s), the whole market or key sectors can come down. These major investors have different investment goals than most individuals. They must hit their own investment goals, which are short-term, and an under-performing stocks are often sold.
The uncertainty is almost always negative in the sense that the market fears earnings will fail to meet expectations. When a key company stumbles, it may affect the entire sector so your investments could be hurt even if you don't own the stock.
Of course, there are times when stock investors are pleasantly surprised and companies report higher earnings than expected. Either way, investors are often nervous as the earnings reporting season begins.
In general, the week leading up to earnings reporting can be a good week to sell (in anticipation that earnings reports may drag down prices). If reports drag down stocks, you may find some bargains in stocks that reported acceptable earnings, but fell nevertheless along with the sector.
The best move for long-term investors is to ride out earnings season with an eye on any stocks you have wanted to add - you may find a bargain. Earnings growth is an important indicator when looking for stocks to buy.
If you have a stock that you want to sell, consider doing so before earnings season begins to protect against a price drop, but don't sell just because of earnings season.
