Leading Off… A rule for all seasons that will save you

Screen Shot 2014-05-05 at 9.13.38 PMTim Reazor
Chief Investment Strategist
NorAm Asset Management

It’s happened to all of us at least once.  If we’re being honest it’s happened more times than we’d ever like to admit.  Then one day all of a sudden you reach a point and it doesn’t happen anymore.  The “it” is taking a stock you love, a stock you’re uber bullish on and riding into earnings.  You can see it now… the little stock you own is going to just knock it out of the park.  Your shares or “lottery ticket” calls that you bought are going to explode when your “AppleGoogleNetflixSalesForce.com” explodes 100 dollars to the upside as soon as the numbers are released.

Inevitably when the numbers are released the stock isn’t a dream it’s a nightmare.  It’s flat or down…  you take back the Ferrari in your mind you’re moving down the food chain in a reverse Jefferson’s kind of manner.

For some of you you’ve found success once or twice and have struck “earnings gold” and like golf you hit one good shot every other round and suffer through multiple 114 stroke rounds just to feel the thrill up your leg like Chris Mathews while listening to President Obama.   Like all thrills eventually “earnings gold” becomes a fool’s errand quarter after quarter and you’ve lost more than you’ve ever gained.

There is hope.  There is a rule you can employ that can help smooth out your earnings season.   Several years ago I sought out guidance from someone in the investing community that I have the upmost respect.  I asked him how he handles earnings season for stocks that he owned.   He told me that if he didn’t have a ten percent gain in the stock going into the report he sold the stock or trimmed significantly.

This rule made sense to me immediately.  Most stocks aren’t going to dip more then 10% from an earnings release.  Further study on my end realized that most stocks don’t extend beyond 1 standard deviation pricewise from an earnings release.  This 1 standard deviation potential price move in either direction rarely exceeds 10%.

With the preponderance of evidence gaining it’s now very easy for me to cut any stock that doesn’t meet my 10% threshold.  Do I miss out on a few earnings gold moments?  Sure, but I’m ok with that… I’ve missed a ton of portfolio destroying moves to the downside at the same time.   I’m not perfect, but who here is without stock sin?

As simple as this rule sounds it’s really hard to employ.  We’re in this game to become wealthy so as we don’t ever have to worry about expenses right? So selling a stock your super bullish on into the earnings report – the report that’s going to make you mega rich – is really hard.

Some folks refer to investing as an art and science.  Investing is science and psychology.  Everyday you’re in the markets you’re fighting God given human emotion.   You have two choices.  You can adapt to the game and find ways to succeed or you can continue to exhibit the same pattern of behavior that wins you some, loses you some and really never gets you ahead.   In order to reach your next level, breakthrough a personal plateau, you have to grow and be willing to open your mind to a new way of thinking.

No one is born good at this, everyone gets knocked down… it’s what you learn along your journey, what you allow yourself to overcome and then sharing that knowledge so others can succeed that matters.

Altruistic? Totally, but if you knew my journey you’d understand why I’m more than happy to give back in any manner possible.   

On a completely different note I’m a self-described stock nerd.  I make a video every weekend for fellow stock nerds worldwide.  Here’s this past weekend’s in depth video.  I also cover how to handle the silver and gold trades we set up during the webinar on 7/8.  Here’s the link –  http://noramassetmanagement.com/videos/weekend-video-update-13/

I’m fortunate to work with Danny Stewart.  This man saves people from their terrible annuities almost everyday. I don’t know how he does it… so many folks have been sold a terrible bill of goods and Danny more often then not fixes bad situations.    If Danny has a mission on this earth it’s to eradicate salespeople that that take advantage of investors.  His other mission is to keep me on task during our radio show.  If you’re the type that enjoys smiling while you’re learning, loves America, coffee and dogs with human names like Isaac then this show is for you.  To listen to our latest effort please click this link – http://www.thewallstreetshuffle.com/category/podcasts/

And finally since I genuinely forgot to his the record button on the webinar I taught on 7/8 I’m going to host a new webinar on 7/22 at 7 PM central.   We need a recorded version of this class for multiple reasons.  It’s hard to teach a class without feedback from a live audience… at least it is for me.   So I’m going to create fresh screens, watch-lists, trade ideas and credit spreads for the class on 7/22.  Hopefully we’ll nail another setup on the 22nd like nailed gold and silver on the 8th.  I can’t make any promises, but if there is a setup out there that I like it I’ll set it for you and design a couple of trades around it.

If you or anyone or any group would like to attend on the 22nd please pass along this link to register. https://attendee.gotowebinar.com/register/6544919190347270402 The class is 100% free.  You simply need to register to attend.  A link to the recording will also be emailed to you as soon as we have it posted.

I hope this helps you find success.

Best Regards,

Tim

The information presented is for educational and entertainment purposes only.  Opinions and information expressed are based upon information considered reliable.  However, factors are constantly changing and should not be relied upon. You need to do and verify your own research.  

Moreover, no reader or listener should assume that any information or discussion presented serves as personalized investment advice from NorAm Asset Management, Inc. or from any other investment professional, and is not an offer of solicitation for the sale or purchase of any specific securities, investments, or investment strategies. You need to have your own, individual investment advice suitable for your personal situation.

 

Investments involve risk and unless otherwise stated are not guaranteed.