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Should You React To Quarterly Results?

Be prepared to stick to your guns if the market gets it wrong on your stocks.
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We enjoy our Zen-like questions here at TheStreet. If a tree falls in the forest and no one is around to hear it, does it hurt property values? What is the sound of one hand clapping after a market rally? If I haven’t checked my portfolio, is the S&P500 simultaneously both up and down?

And, asks Paul Price, “if other investors scurry despite solid earnings, should you, too?”

Although unlike the questions that make us so popular at parties, this one actually has an answer.

“Almost every publicly traded American company reports results four times a year," Price wrote recently on Real Money. "Barring unusual other events, those are typically the most important sources of information investors get concerning the both the health and true worth of the underlying firm."

He added that "quarterly reports provide indisputable facts. Market reactions to those facts, though, often go in unexpected directions. Unjustified surges or selloffs provide great money-making opportunities for traders who understand what they just heard and disagree with the knee-jerk price action."

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Price recently considered two examples of this scenario. "Berry Global Group  (BERY) - Get Berry Global Group Inc Report  and Caleres  (CAL) - Get Caleres, Inc. Report each represent large dollar positions for me. I was thrilled on Nov. 18, when both companies released excellent news regarding the latest quarter as well as future guidance."

However, "BERY shares, which were near $71 just ahead of the news release, tanked the next morning. The stock briefly went as low as $65.35 before rebounding part way to close at $65.56.”

In such situations, "it boils down to how confident you are with your own planning. When a solid quarterly report comes out and the stock price dips, this might indicate that other traders see something that you’ve missed. After all, we are none of us perfect. Take a minute to consider your position. Is it possible that there’s something you didn’t see here?"

He adds, "Look at your work carefully, but confidently. After all, while you’re not perfect, neither is anyone else on the market. It’s just as possible that those other traders missed something and then piled on the bandwagon once the price started moving."

If that's the case, "don’t be afraid to stick to your guns. If you think this stock is a good investment, and a quarterly report reinforces this position… Well sometimes the best thing you can do is take the win."

Get more trading strategies and investing insights from the contributors on Real Money.