Q3 Earnings Season: Guide for Strategic Entry against Expectation

The third quarter of year 2021 will end in a couple of days; and in a matter of weeks, results of listed companies on the floor of the Nigerian Exchange will begin to roll into the market. Investment in the stock market requires deliberate effort to ensure more wins and fewer losses. At that, it is important for investors to know what to do per time relative to the seasons and times in the market.

There are seasons and times in every stock market community. There is the earnings season when results are released; this happens at least 4 times in a year. There is the bullish season when prices are generally up, even if there are no results being released. There is also the bearish season when prices are generally down. For sure, there are periods when the market is sideway; that is, when the market is neither bullish nor bearish.

Q2 results for most companies was fantastic. At that we should expect a better performance in their Q3 results.

The economic indicators is showing positive signals as inflation figure as dropped to 17.01% and CBN also retained key lending rates. This implies a positive outlook for the market in the fourth quarter.

Profit taking by investors is creating good BUY opportunities as prices of stocks keep coming down. The lower the price, the better for entry.

How do you invest in earnings season?

The most mistake people make all the time in the market is a situation where investors do rush to invest with the release of quarterly reports, audited reports or declaration of dividend. That’s actually a wrong way to invest in the stock market. Investment in stocks is done against expectation and not on realities. In other words, you are buying into a company based on what you think you can get; that is expectation. For instance, when you are putting your money in a stock for example, Access Bank, it is because:

  • You hope that the price of Access Bank will grow more than it is now along the line.
  • You are buying today because you hope and expect the bank to be there, bigger and better in years to come.

If your expectation is that an institution will soon be gone and out of operation, you will not be investing in it.

Expectation is the mother of all investment strategies. At that, investing only after you have seen the result of a stock is wrong. It is a wrong approach.

How then should you be investing?

  • Invest long before the next quarter’s result is released.
  • You must always have an expectation of the outlook of the next quarterly report.
  • Then invest, take position and wait.
  • The next line of action should be first to monitor price direction while you are waiting. Price may be fluctuating. So long as your expectation is intact, wait.
  • Results when released will form the answer to your expectation.
  • If the result is good, then you have passed. You might decide to wait or buy more. You might decide to wait in the stock, buy more or even sell; take out your money and move on to another stock.
  • If your expectations are not met, taking a decision appropriately should be expected.

How are expectations formed? How do you make up your mind to invest against that expectation? The following should form the basis of your expectation:

  • Listen very carefully to news about the organisation. It could come through the pages of newspaper. It could come on the social media. It could come among your friends. It could come from people working within the organisation.  When you are interacting and relating, also keep your ears on the ground because some of the information that filters to your ears could actually be processed and make use of to benefit you as you invest in stocks.
  • Look at the product and services of the organisation.
  • Look at the Board and Management of the organisation
  • Consider the previous results of the institution; that is, quarterly reports, audited reports and history of dividend payout.

The Third Quarter reports are in the making. So for you to invest well in stocks, seek to lay hold on what the company’s third quarter earnings always look like. Is it improving every third quarter? Is it declining, fluctuating or stagnant every third quarter? You need to get these information yourself. It is extremely dangerous investing in stocks of companies without results.

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