Money Matters

When Is It A Good Time To Buy Shares?

(Source: www.fool.sg)

Have you ever bought a stock before an earnings announcement, only to see the company?s stock tank after poor results? I know I have. At the same time, I have also waited patiently for a company to release its quarterly report before finally deciding to buy the stock. Unfortunately, because of an outstanding quarterly result, the stock price soared. As a result, I had to buy the stock at a higher price than I could have. Although my long-term thesis of both companies remained intact, each scenario led me to reap poorer returns in the short-term as I bought shares at…

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Have you ever bought a stock before an earnings announcement, only to see the company’s stock tank after poor results? I know I have.

At the same time, I have also waited patiently for a company to release its quarterly report before finally deciding to buy the stock. Unfortunately, because of an outstanding quarterly result, the stock price soared. As a result, I had to buy the stock at a higher price than I could have.

Although my long-term thesis of both companies remained intact, each scenario led me to reap poorer returns in the short-term as I bought shares at higher prices than I could have.

So this led me to the question: Should I buy shares before or after a company’s earnings release?

The unfortunate truth

As investors, most of us hope that we can have better control over our investments. Unfortunately, the reality is that the short-term choppiness in the market makes timing our investments nearly impossible. This is especially so during earnings season where market volatility is even more pronounced and unpredictable.

Market reactions are difficult to predict

Even if we have an idea of how the company will fair in the next quarter, it is difficult to predict how the market will react to the news.

For example, recently a travel company released results for its latest quarter. Although the company handsomely beat analyst estimates for the quarter, management guided down their forecast for the fourth quarter of the year. This unexpectedly led to the stock plummeting 13%.

At the same time, I have noticed companies that have reported results that are poorer than consensus estimates and yet their share prices have increased the following day.

Markets may overreact or even react negatively to good news and vice versa. It is, therefore, almost impossible to time the market. In other words, we will never know when Mr Market will be euphoric or depressed.

The Foolish bottom line

As stock investors, we need to realise that we have to live with the short-term unpredictability and volatility of the stock market. This may mean buying stocks at higher prices or even selling stocks lower than we could have. This is the unfortunate reality of the stock market.

Yet even with this disadvantage, the stock market provides wonderful opportunities for investors due to the long-term potential of stocks. Those of us who can see beyond this short-term choppiness can realise much greater gains in the long run.

Meanwhile, for more (free!) investing insights, sign up here for your FREE subscription to The Motley Fool’s investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

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More Info: www.fool.sg

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