Why You Have to Play This Earnings Season

I live in Manitoba, Canada, and when fall arrives, I know that frigid winter temperatures are soon coming.

Yet I still have cause to celebrate autumn…

My favorite season is stock market earnings season.

Fortunately for me, that means my favorite season comes four times a year after each quarter end.

And right now, third quarter earnings season is in full swing.

The reason I love earnings season so much is because it is where a huge percentage of all stock market returns are generated…

Earnings are the catalysts that move stock prices. A stock can move more in one day on an earnings announcement than it moved in the prior three full months.

Given that so much of the long-term returns that the stock market produces are generated around earnings, it is imperative that investors be in the game this time of the year.

Missing out on earnings season can mean that you miss out on fully building your wealth.

Let me show you exactly what I mean…

Why Missing Earnings Can Mean Missing a Fortune

Mutual fund giant Fidelity conducted a study to see how important it is for investors not to miss out on the biggest stock market days of the year.

(Remember, those big stock market moves usually happen during earnings season.)

In the study, Fidelity crunched the numbers on what would happen to a hypothetical $10,000 investment made in the S&P 500 from 1980 to 2020 if you missed out on the best stock market days over those 40 years.

The results were stunning…

An investor missing just the best five days over those 40 years would have had a 38% lower total return. Instead of receiving $697,421 from a $10,000 investment, that investor would receive $432,411.

That means $265,010 would have been left on the table because five days out of 14,600 – 0.03% – were missed.

The other numbers in the study are even more amazing…

  • Miss the best 10 days? Miss out on 55% of the return.
  • Miss the best 30 days? Miss out on 83% of the return.
  • Miss the best 50 days? Miss out on 93% of the return.

While these numbers are truly mind-boggling, keep in mind that these are the numbers for the entire S&P 500. The S&P 500 is an index of 500 huge companies that have the least volatile stock prices.

For individual stocks, the consequences of missing the biggest days of the year are much, much larger. Individual stocks have much bigger moves on a daily basis than the S&P 500 does.

A big move up for the S&P 500 is 2% or 3%. A big move up for an individual stock on a percentage basis can easily be in the double digits.

The lesson for investors is very clear…

Sitting on the sidelines is a big mistake, especially during earnings season when most of these big stock market days happen.

Good investing,

— Jody

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Source: Wealthy Retirement