Investing depends so much on your timeframe. If you think too short term you are often able to avoid pain, but you dramatically increase the chances of missing the big opportunities.
This kind of minute-by-minute thinking plays out every day in this market and, to me, it is quite disturbing.
There's no clearer example of this kind of stock renting, rather than owning, than Facebook (FB), which is part of the Action Alerts PLUS portfolio. For the last couple days Facebook's stock has been under pressure or had radically underperformed its cohort. What is that about? Pretty simple: A research note came out that said when Facebook reports on the 27th it might disappoint.
Holy cow. A stock that's up big with a quarter that might disappoint? That's a clarion call to sell, isn't it?
Hmm, wait a second. Every single time that Facebook has reported there are rumors that it could be a rocky quarter. This was just an analyst who came out and said it.
The problem is, do you want to risk getting out of a stock of a company that is all over the front pages with new devices and methods of advertising and communications, a dominant juggernaut that is without peer except for, perhaps, Snapchat?
Do you want to sell now when this market has become remarkably forgiving during this earnings period? Do you think that you can get out and get in again if things are near-term soft but long-term great and the company has a bright future?
Believe me, I think about these issues all of the time. My charitable trust bought this stock in the twenties; it is now at $111. Do you know how many times I have wanted to trade out of this sucker for fear that it would go down after it reported?
And you know why? Jack Mohr, the research director for the trust, which you can follow along at ActionAlertsplus.com, actually figured out what has happened after the company reports. Facebook has beaten numbers both top line, or revenues, and bottom line, or earnings per share, seven out of eight times. It has raised its forecast eight out of eight times, causing analysts to raise estimates by an average of an outstanding 15% in the days following each respective release.
Yet, despite that amazingly strong history of delivering better-than-expected results, how had the stock done in the wake of them? It's closed down 50% of the time!
In the week following its earnings report, the shares have traded lower 63% of the time. How can you not want to sell? The odds favor that it will be lower a week later -- don't you have to get out ahead of the quarter?
Here's the issue, though. The stock has appreciated an average of 9% from one quarter to the next. The initial skepticism often provides a rare buying opportunity, not a selling opportunity. Yep, renting and flipping instead of owning and buying has proven to be the sucker's game.
I feel pretty much the same way about Amazon (AMZN). Is there any doubt that this company isn't doing well? Even as retail sales are down big this month, even as mall traffic is, by some sources, down double digits, Amazon just keeps delivering one step ahead of the posse.
I think the consumer, particularly the millennial consumer, has turned against going to the mall except for cosmetics -- a new necessity because the high-resolution Apple (AAPL) iPhone screen demands that you be made up before you go outside the door, any door, lest someone take your picture, including yourself. The millennials hate materialism and they don't like to waste their time shopping. It's a huge change.
That's why Amazon has been such a long-term winner. But short term? This is a quarter where all of the so-called "in the know" analysts have said that Amazon is going to spend too much this quarter and the reported number on April 21 could be very disappointing. So the other day, I pointed this out, and what happens? The stock rallies for five days and the yahoos on Twitter (TWTR) come out with guns blazing saying either that I kept them out of the best stock ever or I made them sell it ahead of a fantastic run.
All I was really trying to do was warn people that there's a monster amount of chatter about a potential guide down when the company reports. I think it's my duty to tell you what I am hearing.
What do I really think of Amazon? I typically like to do my own work, but there are instances where I recognize that my analysis is inferior to others, and in the case of Amazon I defer to Bob Peck, the man I call the Sun King, over at SunTrust. I call him that because he has kept me positive through the usual vicissitudes of owning a stock such as Amazon.
He provides a valuable perspective pointing out that Amazon Web Services, which is the single-largest provider of cloud infrastructure globally, could be worth $100 billion. That's right, $100 billion. That means the actual company that you know as Amazon isn't as expensive as it seems, even at almost $300 billion in market capitalization. Amazon Web Services is the new mall -- you hire them and they get the job done better than you can.
I could easily say don't worry about the quarter. Yet, if you do that and it turns out to be the heavy-spend quarter, then I will hear about it for the rest of my life. People will play the clip endlessly. So I offer the caution not to get you out, but to tell you about a potential speed bump that might be too jarring for you.
Just remember if it really gets whacked that there is a division that's worth a ton of money that's not even reflected in the valuation.
For those of you who want to know how insane all of this short-term thinking is, almost two years ago we did our live show from Villanova. What a grand time! I remember Starbucks (SBUX), which along with Apple also is part of the Action Alerts PLUS portfolio, reported right while we were filming the show. The stock had ran into the quarter, and the moment the number was reported it got hammered mercilessly down almost three points. I looked at the number during the commercial break. Better earnings. Better same-store sales. A big guide up in forecast. I thought it was insane that it was being crushed.
I also thought, though, that I should have said if the stock runs ahead of the quarter it could give up some of the gains and then some.
Now for a sweet bit of coincidence: Tomorrow, Jay Wright, the coach from the Nova team that won the NCAA men's basketball title, will be ringing the opening bell and Starbucks will be reporting next week. Once again, I am hearing that the quarter may not be a barn burner and there is a chance that this stock could get socked. A junior analyst over at Deutsche Bank pretty much said so the other day.
Yet, when I look back at the chart of Starbucks that includes that day at Nova, you know what? I can't even see the decline. In fact, the stock has exactly doubled since that day at the fieldhouse.
Thank heavens I kept my mouth shut. So as we roll through earnings season, let's keep this thought in mind: Stocks don't always get it right in the short term, and if you play the short-term game, I think that you, too, might not get it right, either.