Volatility So What
Below is a MRR and PLR article in category Finance -> subcategory Stock Market.
Volatility, So What?
Summary:
Learn strategies to reduce portfolio volatility and avoid the expectation game during earnings season. Discover how choosing companies with modest expectations, predictable cash flow, and strong balance sheets can help stabilize your investments.Article:
Earnings season often brings volatility to stock prices, with traders reacting quickly to reports. Take Texas Instruments (TXN) as an example: despite reporting a 12% earnings increase in the third quarter of 2005, its stock fell after hours due to a weak forecast. This highlights the expectation game?"stocks typically rise if a company beats expectations and fall if they do not.
However, you don't have to ride this roller coaster. Here are some ways to minimize volatility in your portfolio:
1. Invest in Companies with Modest Expectations**:
- Opt for companies with a forward P/E ratio of less than 10. This indicates that expectations are already conservative. If such a company misses expectations, the stock price may not drop significantly since it has already priced in zero earnings growth. Even with constant EPS over a decade, a P/E of 10 can still yield roughly 10% annually for shareholders.
2. Choose Companies with Predictable Cash Flow and Dividends**:
- Investors dislike uncertainty, and dividends offer some predictability. If a stock with a 4% yield misses expectations, its price may fall, increasing the yield to 4.2 or 4.5%. This often attracts value investors, stabilizing the price.
3. Select Cash-Rich Companies**:
- Companies with strong cash reserves offer a safeguard against market volatility. Consider OmniVision Technologies Inc. (OVTI), which had a market cap of $720M and $300M in net cash?"about 41.6% of its market cap. This substantial cash cushion makes it unlikely for the company’s market cap to dip below its cash reserves.
By focusing on these strategies, you can enhance the stability of your investments and navigate market fluctuations with more confidence.
You can find the original non-AI version of this article here: Volatility So What .
You can browse and read all the articles for free. If you want to use them and get PLR and MRR rights, you need to buy the pack. Learn more about this pack of over 100 000 MRR and PLR articles.