There's a big difference between trading and investing. When you invest in a stock, you should be going in with a long-term view. You can certainly change your opinion as time goes on and events warrant it. But you shouldn't plan to hold a stock for years and then get spooked by one bad earnings report (unless something extraordinary happens, like fraud). Trading is different. A trader is often looking for a specific catalyst. Many traders view earnings reports as important catalysts. It's not uncommon to see a stock surge after the company reports a beat on quarterly earnings. For example, Powell Industries (Nasdaq: POWL) just announced a big earnings beat last month. It crushed earnings by an astonishing 160%, and shares jumped 20% the day the report was released. A few days later, Hello Group (Nasdaq: MOMO), an entertainment tech company, beat earnings by more than 20%. The stock price jumped 36% on the news. So it's important to have near-term catalysts for your stock. Otherwise, you have no reason to believe the price will quickly move higher - other than that "it's a good stock," which isn't a valid rationale at all. If there's no reason to expect a stock to jump in the near term, your investment could be dead money. It could just sit there, doing nothing. If you're putting your money to work in the market in the short term, you want the trade to be completed fairly and quickly. Make your money, get out and move on to the next trade. |
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