When good stocks go bad
Both Amazon and Apple reported today after market close and both, surprisingly, disappointed. They both dropped about 3-4% in after-hours trade and will probably take the market down tomorrow, just on the math alone a they represent a huge hunk of indices. A single quarter’s bad results should not unduly alarm anyone. Particularly as these behemoths are getting so large that it is virtually impossible for them to continue to put up growth numbers like they historically have just because they are so large now. The law of large numbers tells any sensible person that.
Generally, a drop in price in blue chip stocks like these can be a good buying opportunity. Or at least an opportunity to sell a put, with the hope of getting in at an even better price if it drops more. A 3-4% drop generally does not interest me in terms of stock purchase, I prefer a sell-off of 5-10% for that, but I will probably write puts for them as I do not own either currently and would like to get back in.
If a stock has a poor earnings quarter it is useful to listen to the earnings call. You can do this by going to the investor relations section on company’s website. A lot of the trading platforms let you listen in on the actual call (public access is mandatory for publicly traded companies) which can be interesting and at time amusing (Tesla calls anyone?). These calls will let you know why the earnings disappointed; was it a one-off or a major problem that the company has to deal with longer term. This can help you decide if you still want to own the company. (Apple and Amazon both had labor and supply issues that should resolve soon - not a long term issue)
If you do want to own a stock with a poor quarter, wait a bit. It sometimes takes up to three days for a stock to settle after a bad quarter. If you feel like you have to get in, buy a little and wait to buy more. Do not be surprised if the drop in the after-hours is not carried through the following day. The market can be fickle, good reports and the stock sells off the next day (Thus the term “Sell the news”). Bad reports and people that have missed out on owning the stock may rush in to buy. There is frequently an over reaction on either side and then, throughout the day, a reversal. This is why it is important to have a discipline: Before earnings determine a price you are willing to pay, and then act accordingly. Do not get swept up in the emotion of the earnings move. Buy a little if it reaches your price, but hold off it doesn’t. You generally always get another chance to get in.
Market Today: Positive day. Tech stocks did well based on tech earnings from the after-hours report of the day before. The rest of the market moved up on solid earnings, hopes of finalizing the infrastructure deal (still being held up by people who are holding the rest of us hostage to their ideology), some positive economic indicators and moderating interest rates. Made money on Service Now (NOW), Shopify (SHOP), Albemarle (ALB) and Roblox (RBLX). Made a quick unexpected profit on put on Facebook’s due to its name change to Meta, although how that benefits the company is not clear to me.