Exchange traded funds (ETFs) and stocks go hand-in-hand with the latest news, whether it’s a solid earnings report or a political event. An investor usually wants to hold onto a company if it’s positive news, however, Glenn Curtis for Investopedia says there are things to consider when taking in the news.
- Look for something offsetting. Companies often know that a piece of bad news will signal a sell-off, so in an effort to limit the potential damage, they will combine it with something positive to help shareholders and Wall Street overlook it.
- How will the news affect the future? A spate of good news is great for now, but potential growth going forward isn’t a guarantee. Take in the news and try to come up with potential repercussions this might entail for the company.
- Be aware of expectations. Stellar earnings or numbers far exceeding anticipated ones are wonderful, but if a company fails to meet "whisper earnings," the stock may be finished.
- Establishing a trend=caution. Keep in mind even if a company has an exceptional quarter, or has a relatively consistent pattern, it may may not be able to top itself time and again.
- Has a company milked the sell side for all it’s worth? After research coverage has been picked up and reported, a company usually takes off, but after the initial "pop," make sure there is substance.
We advocate developing a discipline and sticking to it. Avoid getting caught up emotionally with your holdings and reacting too quickly to either good or bad news. Our strategy is to follow a 200-day moving average. If a fund drops below the average or 8% off its high, we sell.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.