💸 Down 15% on earnings: Panic or opportunity?

👋 Howdy Partners,

Quarterly earnings season is in full swing, and Mr. Market has been very moody.

Case in point: Last week, two of our portfolio holdings reported earnings, and the market treated them completely differently:

1. Company A reported a temporary dip in profits as margins returned to normal levels, and Mr. Market immediately threw a fit, knocking 15% off the stock price in a single day.

2. Company B reported solid sales growth as their long-term investments (that management had been telling us about the whole time) began to pay off, and the market rewarded them with a strong rally.

When you watch a stock you own drop 15% in a matter of hours, your brain naturally wants to do one of two things: panic sell or buy the dip.

But as long-term investors, we need to ask a simple question:
Has anything actually changed with the underlying business, or is Wall Street reacting to short-term headlines?

Most of the time, quarter-to-quarter earnings volatility is just noise.

Or buying and selling based on a $0.01 miss on analysts’ estimates.

For long-term owners of the underlying business, focused on compounding cash flow, that short-term panic can give us great buying opportunities.

-TJ

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

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