To The Moon

Every earnings season brings the same dilemma. A company is about to release its financial results, and investors have to decide whether to hold their shares overnight or reduce their positions before the announcement.

It sounds like a simple decision, but it can make a significant difference to a portfolio.

A stock can jump 10% or more after a strong earnings report. However, it can also fall sharply even when the company reports record revenue and beats analysts’ expectations. The market doesn’t always reward good results, especially when investors were already expecting something exceptional.

For me, the biggest question isn’t whether a company will beat earnings estimates. It is whether the results will be good enough to justify the expectations already built into its share price.

1. The danger of buying into high expectations

Some companies enter earnings season after weeks or months of strong share price gains. Investors become increasingly optimistic, analysts raise their price targets, and expectations continue to rise.

This creates a difficult situation. Even a solid earnings report might disappoint the market if revenue growth, profit margins or forward guidance are not strong enough.

This is particularly relevant to AI and semiconductor companies. Investors are not only looking at current chip sales but also future demand, data centre spending, customer commitments and the potential returns from massive AI investments.

A company can be doing well financially, but its share price may still be vulnerable if expectations have become unrealistic.

2. Why I wouldn’t automatically sell before earnings

I don’t believe every earnings announcement should be treated as a reason to exit a position.

If I own a company with a strong competitive advantage, healthy cash flow, manageable debt and sustainable long-term growth, I would not necessarily sell simply because quarterly results are approaching.

Long-term investing requires accepting some short-term volatility.

However, there is a difference between having confidence in a business and ignoring the risks. If a single disappointing announcement could cause a serious financial problem for my portfolio, my position may simply be too large.

3. Taking partial profits can be a sensible compromise

Rather than choosing between selling everything and holding everything, I prefer considering a partial reduction.

For example, if a stock has gained 30% or 40% ahead of earnings, taking some profits can protect part of those gains.

This approach offers two advantages:

• If the stock rises after earnings, I still have some exposure.

• If the stock falls sharply, I have reduced my downside and have cash available.

It is not about trying to predict the exact market reaction. It is about making sure one earnings announcement does not determine the performance of the entire portfolio.

4. Guidance may matter more than the headline numbers

Investors should look beyond revenue and earnings per share.

I would pay particular attention to:

• Revenue growth: Is demand accelerating or slowing?

• Profit margins: Is the company growing profitably?

• Free cash flow: Are reported earnings translating into actual cash?

• Forward guidance: What does management expect for the next quarter and full year?

• Capital expenditure: Is spending increasing faster than expected?

• Customer demand: Are customers continuing to spend, or are there signs of hesitation?

For AI companies, I would also watch whether enormous investments in computing infrastructure are generating meaningful commercial returns.

The market may tolerate heavy investment when growth is strong, but patience can disappear if spending keeps increasing without a clear path to profitability.

5. Cash gives investors another option

I also think keeping some cash available is an underrated strategy.

When a stock drops after earnings, the first reaction is often emotional. Some investors panic and sell, while others immediately buy the dip.

I would rather wait for the market to digest the results.

If the business remains fundamentally strong and the decline is mainly caused by short-term sentiment, it could create an attractive opportunity.

But if the company has missed expectations because demand is weakening, competition is increasing or its financial position is deteriorating, a lower share price does not automatically make it a bargain.

There is a big difference between buying a temporary sell-off and trying to catch a falling knife.

6. What about the wider market?

Earnings should also be considered in the context of the broader market.

Even companies delivering good results can struggle if investors are becoming more cautious, bond yields are rising or expectations around interest rate cuts are changing.

I would keep an eye on the S&P 500 and Nasdaq 100, particularly whether market weakness is concentrated in individual companies or spreading across different sectors.

If several major companies report disappointing guidance, it could affect market sentiment well beyond those individual stocks.

My strategy: I don’t want earnings night to become a gamble.

I would generally:

• Hold quality companies when the long-term investment thesis remains intact.

• Consider taking partial profits when valuations and expectations become excessive.

• Be more cautious with speculative stocks that depend heavily on future growth.

• Avoid making oversized bets immediately before earnings.

• Keep some cash ready for opportunities after the market reaction.

Ultimately, I would rather miss part of a sudden overnight rally than expose too much of my portfolio to an event I cannot control.

There will always be another trading opportunity. Protecting capital allows us to stay in the market long enough to benefit from the next one.

My view: The best earnings strategy isn’t about predicting which stocks will jump tomorrow morning. It is about knowing why we own them, understanding what could go wrong and deciding how much risk we are willing to accept before the results are released.

For discussion purposes only, not financial advice.