Capitalizing On Quarterly Results

With the continuous inflow of quarterly reports coming into the market, many fail to see the opportunity for wealth generation it brings. Rather than just analysing results, capitalizing on quarterly results can help investors gain profits while the others sleep, and switch the market’s tide towards themselves.

There are of course, many ways to use companies’ quarterly results to pick investments. Investing in businesses who have knocked their guidelines and estimates out of the park may seem like the obvious choice for many; but what most investors fail to realize is that investing in stocks everyone believes are ‘good’ is easy, but gaining profits out of those investments, is not. This is because to gain results that are better than the market, one must have an opinion that differs from the market itself. This is easier said than done, but to ensure supreme results, it must be a principle: You need to invest in stocks that everyone considers a no-go, rather than those that everyone believes is great. Now you might ask, that if a stock is considered a bad investment by all, there must be a valid reason. That is exactly what makes it even harder to pick a winner; determining whether everyone’s reason for disliking a stock is right, or wrong.

Here is where “second level thinking” comes into play. As beautifully described by Howard Marks in his book titled “The Most Important Thing” (which you can find here :- ) second level thinking is going into a deeper level of analysis. A first level thinker dismisses opportunities because he looks at them only from one angle and one level. A second level thinker takes opportunities by analysing them deeply, and figuring out possible future angles.

Instead of saying “The company is projected to miss estimates. Lets sell.”, a second level thinker says “The company will miss its estimates, but the results still will not be as bad as people expect, and the pleasant surprise will drive the stock up. Lets buy.” A second level thinker also thinks of the future in respect to the opportunities that arise for him. While most would say “The company is in a downward spiral and is not showing growth. Lets sell.” A second level thinker would say “Yes, the company is in a downward spiral, but the management of the company is excellent, and should be able to put it on the right path in the future. Lets buy.”

Second level thinking when it comes to quarterly results works in a similar way. Instead of aiming for companies who have achieved stellar results, look at those who have announced average, or even poor results. Use the negative reaction of the market in your favour, by buying an undervalued stock with good fundamentals, which most people have disliked and sold, by utlizing second level thinking.

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3 Responses

  1. It’s an insightful article. An important reminder that following a herd mentality will result in average or below average outcome. Liked the concept of applying second level thinking while hunting for undervalued stocks which have solid business fundamentals in place.

  2. The article provides an intresting perspective but the ability to predict if a company will be able to regain profit after a downward spiral is difficult and maybe even impossible for seasoned investors. Also the point at which you buy after a downward spiral is of utmost importance as you never know when it will end and when it rises, it may have a sudden increase.

    • Hi Kunall,
      That is exactly what we were trying to convey through this blog. I highly appreciate your efforts, and the way you decoded our blog.


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