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Post-Earnings Season: The Best Thing to Do Right Now

The best stock market returns may be found in investing for the long-term. But, there are many distractions that can sway us from staying the course.

Every three months or so, we get new earnings reports from Singapore-listed companies. If a company brings in lower profit, its shares may dive. On the other hand, if the earnings surprises on the upside, the company’s shares may rise.

But regardless of how a company’s shares may perform when it reports its latest results, there is something more important for us to do.

Don’t just do something. Sit there!

Let’s take corporate marketing firm Kingsmen Creatives Ltd (SGX: 5MZ) for instance. Its latest earnings report didn’t contain a lot of good news: Revenue had shrank by nearly 12% while profit collapsed by close to 90%. Shares of Kingsmen Creatives have since fallen by 16.7% from where it was trading before it released its earnings.

Movements like these tend to generate a lot of excitement and/or fear. Like a cat chasing a laser pointer, we are drawn to these big share price movements, thinking the movements are worthy of our attention.

Businesses, not tickers

But, we should look beyond the share price movements. Time may be better spent in digging deeper into a company’s results. For Kingsmen Creatives, some relevant questions may be:

  • What are the current issues affecting its revenue and profit?
  • Are the issues temporary or permanent?
  • What actions have management taken to address problems, if any?
  • Does it have free cash flow?
  • Does Kingsmen Creatives have a strong balance sheet?

Answering those questions may be a more productive use of the investor’s time. Also, bear in mind that it is just one quarter’s worth of results. As Foolish investors, we may want to look at the longer term picture and be wary of recency bias.

Foolish takeaway

To be clear, none of the above is meant to say that quarterly earnings reports are not important.

Cash on hand matters. Cash flow matters. Getting updates from management matters. But trading around share price movements may not be what we want to do.

As such, our time is best spent focusing on the business instead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.