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Whitewash

Behavioural Finance

Random action on earnings shouldn't happen!

 

Tech company Nvidia NVDA is sharply higher (over 11% at the open) following the release of earnings after the market closed Wednesday. This is great news for accounts that hold it still but those who sold the stock based on this week's sell signals are undoubtedly frustrated. Or worse.

 

Randomness is an issue with navigating the stock market and here' s how it has played out in just the last two days. First, the obvious with NVDA surging unexpectedly on earnings but on Wednesday we saw the opposite with another tech industry leading stock Pan Alto Networks PANW plunging 28%.  Only a few days ago tech stocks, as a group, triggered sell signals. So how would you have known to hold NVDA but sell PANW?

Following the bursting of the internal bubble stock market of the late 90's security regulators charged several organizations and individuals with various criminal charges under existing security laws. Martha Stewart was the "poster boy" of this era as she spent four months in jail. In the early 2000's a number of new laws were implemented effectively blocking leaks on earnings between public earnings release dates. That seemed like good news at the time, but was it?

The underlying premise of public markets security legislation is transparency and disclosure. But ask yourself this question how do the laws serve the public when mutual fund and pension fund managers move stocks by extreme amounts immediately following earnings results and less so the rest of the time? How does the average person know where to position capital with the obvious unpredictable uncertainty that shows up every three months? 

This shouldn't happen. The truth is it would be easier to recognize trends and make related buy and sell investment decisions if the stock price moved gradually day after day as money moves in and out of the stock based on what is being learned. Private company investors can potentially know more about the company they invest in by doing their homework and getting the relevant information.  

Earnings results have created an investment environment that is far too speculative for intelligent investing. 

In other news: Typo lifts Lyft. 

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