Fundamental analysis: Good Earnings -> Stock Rises?

As we are approaching the annual report earnings season, here's a quick refresher on fundamental analysis and earnings.

1. When a company makes more money, the stock rises. There's a correlation between making more money and the stock increasing.

2. However, stock price can go up and down after earnings based on expectations (basically, people guessing what the earnings would be)

3. So in the short term, one good/bad earnings does not necessarily allow you to predict the jump as you need to factor in what people are guessing and "buy/sell early before earnings"

4. Thus, fundamental analysis is a long term trend tool but not a short term earnings tool.

5. If you buy generally good companies, profitable and growing, you should experience a generally increase in stock price.

Cheers,

Eric

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Eric Seto

Chartered Professional Accountant (CPA)

Chartered Investment Manager (CIM)

Founder of 5MinInvesting.com

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