The Secret Tip To Investing Nobody is Telling YOU! Why Earnings Are Important.

How do we know which companies to invest in? How do we know which company will do well and who will do badly in the future? You might have a sophisticated investment strategy or algorithm that picks stocks for you, but if you are like many new (or even seasoned) investors you probably just go by hearsay, a recommendation from one of the numerous stock forums like /R/wallstreetbets or /R/Robinhood, or you just pick a company you like and use and start throwing money at it. Let’s be honest with ourselves, few read analysts' research or even know how many analysts are assigned to the stock you like and what their price targets are. If you are one of the ones that get off on that type of stuff and spent hours researching, analyzing, and crunching the numbers then congratulations you can stop reading, if you don’t have hours to spare to stare at numbers and read business jargon read on so I can tell you how to get ahead without doing all that!

I believe managing a decent portfolio doesn’t require sophisticated investment strategy or accounting knowledge (it doesn’t hurt to have that knowledge). Choosing a company, you use and like is usually the first thing I tell people when they ask me how to start picking stocks, and I stand by that. What I advise against is trusting every recommendation on forums that chase penny stocks and post pictures of their 1200% gains, this includes Facebook groups and especially Reddit, one must not look further than the current Gamestop debacle to see how much impact uninformed investors and some runaway capital can have. These open forums are often full of people that are very new to investing but believe they have it all figured out because they once had a 500% gain on a tip, they read somewhere else.

Don’t get me wrong, if you are new to investing, asking questions and speaking to seasoned investors is a great way to gain knowledge, there is tremendous value in some of these forums, especially the ones that have been around for a while, but I think new investors should wait until they halfway know what they’re doing before they take advice from people that might know even less. Remember, every investor's desired outcome is different and stocks and strategies will change depending on your reason for investing. But, I am about to tell you one surefire way to get ahead of most of these people I am talking about no matter what your reasons for investing are, and I guarantee that if you do this you will stump most of these uninformed investors that might seem to know what they’re doing but don’t.

The next step after you chose a stock you like you should be listening in on their quarterly earnings report. Earnings calls are basically an interview with the most important executives of a company where they talk about the company's quarterly performance and give guidance for the next quarter. In this "interview", they are being asked questions by the analysts that cover the stock. They are usually about an hour long and very easy to find. These calls are on-demand if you can’t listen in live, all you have to do is a Google search and type in the name of the company followed by earnings call and then which quarter earnings report you are looking for. For example, AMD earnings call Q4 2020. Usually, they can be found on the companies website, in the investor's section.

Now, if you ever listened to one of these calls you know, they can get kind of boring if you’re not a business nerd, but they usually start with the CEO giving you a rundown of how the company is doing and what their plans for the future are, that’s the best part and you cannot get that anywhere else, it is a direct line to the CEO. It is then usually followed by the CFO or someone else important that is breaking down the balance sheet. This is then usually followed by a Q&A with the analysts that have questions for any of the execs. You learn so much in these earnings calls and often it is one of the only times you will hear from the CEO of the company you like. The wealth of information you receive from these calls is invaluable in my opinion.

Some key things to listen for in these calls are:

· Subscriber growth- The number of new subscribers.

· Daily active user and monthly active users- Self-explanatory

· Growth of certain segments of the business- A good example of this is Apple’s wearables segment which includes Air pods and Apple watches.

· Cash on hand- The amount of cash the company has on hand.

· Debt- The amount the company owes.

· Revenue growth- The rate at which overall revenue increases year over year or by quarter.

· Sales or same-store sales for retailers (sometimes called comps)- The rate at sales in stores that have been open for at least one year, this shows how existing retail operations are growing.

Now, even though I believe that listening in live is the best way to get that information because you are getting it real-time it is not the only way. The company’s earnings report will be reported in most business news outlets like CNBC or Bloomberg, you can also read a summary of the earnings on the web in all kinds of online business websites like TheStreet.com or Seeking Alpha but the summaries are often very short and concise. Another great way to find out what happened at earnings is to do a YouTube search of the quarter in question. Often there is a YouTuber that is breaking down the earnings of your company especially when the company is popular with younger folks.

Knowing about your stock's earnings and having heard directly from the CEO how the company is doing and where they are planning to go will give you a great advantage over investors that just guess where the company is going and how they’re doing. Knowledge is Power!

Thanks,

A Punkrock Capitalist