Earnings season rarely fails to inspire volatile trading on Wall Street; after all, it is during this period that investors’ expectations clash with companies’ bottom-line results.
As you have seen for yourself, the disconnect between analysts’ estimates and reality is a surefire way to encourage both massive rallies as well as spectacular sell-offs.
Stop Worrying About What You Can't Control
The inherently unpredictable nature of earnings season falls under the list of things outside of your control. While this may be a simple truth to embrace, the fact of the matter is that even seasoned professionals can at times become overly-concerned and wrapped up in worrying about developments that they cannot affect.
Two of the most common things that every investor has found him or herself worrying about (even if they won’t openly admit it) include:
- Predicting Earnings Surprises: Face it, you don’t have a crystal ball and neither do analysts, so don’t base your investment decisions around what you feel may happen before/after a company reports earnings. Wait for the facts first, and then pull the trigger on any decisions you plan on making during earnings season.
- Forecasting Macroeconomic Trends: Even the so-called experts have a history of being terribly inaccurate when it comes to predicting how some of the biggest trends will play out on the global stage, whether it’s the unforeseen decline in oil prices or surprise central bank rate decisions. If your investment strategy requires you to correctly anticipate the duration and turning point of most macroeconomic trends at hand, we wish you the best of luck – you’re going to need it.
No matter which way you slice it, worrying about things outside of your control is a surefire way to lose sleep at night, with no possibility of a reward. So what’s the average investor to do?
For starters, cut down your list of worries and only focus on the things that are actually under your control. You would be surprised at how many valuable components of the investment process you have direct control over, including:
- Asset Allocation: You are completely in charge of determining how much you’re willing to risk and for how long. Novice investors are quick to overlook the importance of having a clearly defined asset allocation strategy when this should be the central plan that drives each and every one of your buy/sell decisions. Read more about building your investment process.
- Remain Diversified: You cannot anticipate when or where turmoil will strike, but you can certainly be diversified so that when it does your portfolio doesn’t completely collapse. Read more about the importance of diversification.
- Minimize Expenses, Maximize Savings: You can cut down your investment costs and beef up your savings efforts in more than one way, thereby improving your total return over time. Be sure to read the Free Lunch on Wall Street guide to learn about the 21 ways you can make (and keep) more money.
The Bottom Line
In life, there will always be more things outside of our control than under it. This shouldn’t discourage you from putting your money to work in the markets: just remember that if you must worry, make sure it’s at least about something you have real control over. By focusing your efforts (and worries) on important things like asset allocation, diversification, and cutting down investment costs, you put the odds of success in your favor over the long-haul.
Have a great weekend and remember to check us out on Twitter @dividenddotcom.