Investor's Edge with Gary Kaltbaum - Week Ahead: How to Navigate Earnings and Economic Data [10.28.2024]

Episode Date: October 28, 2024

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Investor's Edge with Gary Cultbaum. Straight talk about you and your money. Now from the BizTalk Studios, here is Gary Cultbaum. And welcome once again to Investors Edge. I'm Adam Sarhan in for Gary Kay, who's out today. Today is Monday, October 28, 2024, and we've got a great show for you tonight. As always, I want to thank you very much for being here. Before we dive into the specifics of tonight's show, we want to just give you a big overview.

This is a show about you and your money and all the fun points in between. Just as a quick reminder, if you don't get this show in your city, you can go to garyk.com. You can listen live, archive, rewind, fast forward, pause, unlimited, as many times as you want on any device, 24-7, all for free at garyk.com. You can also follow gary on x, formerly known as Twitter by just pressing the button. You can subscribe with Gary's morning notes sent directly to your inbox also for free. You email Gary, ask about his money management services. Or if you want more, you can dive into his premium service, which is available at Convictionleaders.com.

All right, all that fun stuff. Let's talk about some notes from Gary so I can get those out right at the beginning. The Dow has dropped over 1,100 points in the last week or so. So bounces are normal. The big story is oil and energy prices. They're plunging. So we're seeing big moves or bounces in airlines, cruise lines, and other things that are reliant on energy.

So oil prices go down, all things being equal, profits for airlines will go up. Think about that, right? So, or same with cruise lines. Lower energy prices in general are accretive for both consumers and businesses, because higher energy prices serve as an indirect tax on both businesses and consumers. So when energy prices go down, you know, that's, it gives consumers more money to spend and it helps create more profit for companies that are reliant on energy or energy is a big cost or a big expense on their books. And then the 10-year yield, watch that as we go forward.

It's near that 4.3%. We're going to watch that going forward. Bitcoin, seven-month trading range has happening. Probably is going to work if it can break out. And then we've got monster tech names reporting this week, five of them. And I think about 15 percentage or so of the S&P, but hundreds of companies are reporting earnings this week. Watch them. Big, big earnings this week. And then on Friday, we've got the jobs report. Next week is, then it's also November. The end of the month is this week also. So looking forward, a few things as far as week ahead, what to expect this week.

We've got earnings, earnings, earnings, just about every day. A lot of earnings coming out this week. We have a jobs report on Friday. We have the ADP report on Wednesday. We have some other stuff sprinkles in between some first read on GDP and some other stuff also throughout the week. But really, the big data point from an economic standpoint is Friday's jobs report. after that we've got an election.

After that, we've got inflation data because it's a new month, right? Friday's the 1st of November. So, and then, of course, earnings, earnings, earnings, not just this week, but the next several weeks, we still have lots and lots and lots and lots of earnings. So what I do, and I have all this stuff coming out, you know, I like to say there's, it's never adult moment on Wall Street, is I want to focus on a few things, which I mentioned one of the times recently when I was hosting the show, but I'll cover it again because we're in the thick of earning season now. I get this question a lot. Hey, Adam, earnings are coming out.

What should I do? What should I look for? Well, or economic data or anything for that matter. Few things to keep in mind. Number one, the market's a forward-looking mechanism, meaning it looks to the right of the chart. By definition, economic and earnings data are rearview mirror. They look to the left. They told us what already happened. Sometimes earnings, they give us guidance, but for the most part, the hard numbers, the EPS, the earnings per share, the revenue numbers, and the other data that's announced, it tells us what already happened in the last quarter. But we're already in this quarter. So that caused me confusion for many, many, many, many years where the market's looking forward, right? That's one. Not to say the earnings don't matter. They do. They matter a lot. But it's the reaction

to the earnings that I place a lot more weight on. Why? Because the reaction, folks, tells you what the big institutions are doing with their money. Not what they're saying they're going to do. Talk is cheap. We know that. It's what are they going to actually do? Are they buying or are they selling? When you see a stock gap up on monstrous volume, let's say it trades on average 7 million shares a day and then it reports earnings. The very next day, stock gaps up on 30 million shares. Like Gary says, it's not Aunt Mary, Uncle Bob doing the buying. It's the big institutions. And they, all things being equal, of course you can gap up and roll over, but for all things being equal, they don't just buy once and they're done. They buy and they buy systematically for several quarters or for several

months, right? So the earlier you can get into a trend like that, the better. Now, it doesn't mean every big gap is going to go up in six months or 12 months or 18 months. No. You know, Best Buy, for example, had earnings a few weeks ago. They had a big gap up and then, kind of slowly drifted lower since. It happens. You right? But for the most part, you want to see a stock gap up on earnings and do it on heavy volume and then continue to run. Either move sideways for a little bit and then break out again or continue to rally. And all things being equal, when a stock does the opposite and you have a big gap down, let's say it closes at 100, opens up at 85. You know, you're down 15 percent, boom, just like that on earnings. It's a catalyst. You get a big

gap down, things change, right? That's the big institution selling. It's not Mary and Uncle Bob doing the selling. And that's important to pay attention to also. Why? Because an object in motion does what? Newton taught us there stays in motion. It doesn't have to, but, you know, usually that's what happens. IBM, for example, was acting great? Went from 163 earlier this year, a 162 area, all the way up until 240-ish or 237 somewhere in that range. And then, just last week, on the 23rd, it closed at 232, 75, it reports earnings. The very next day, it closes at 2.18. So from 232 down to 218, that day it lost about 14%.

It was a gap down. And now you're at 2.13. So literally a week ago, you're in the mid-230s, mid-230s. Now you're at 2.13. Gap down on average volume here is about 3.9 million shares for IBM. And it gap down that day on, let's see here, about 11 million. And then the next day, you had another 8.4 million and you fell. And then you fell again and you broke the 50-day moving average.

That would be an example, even though earnings were up about 5%. Sales were up about 1%. It doesn't matter. Stock gap down and gap down big and kept falling afterwards. So does it mean you have to keep falling? It just, I want to illustrate, you know, show you a big gap down and show you what a big gap up would look like. You know, the exact opposite is the case when you have something like a Best Buy, BBI,

Gapped up when they reported earnings back on the 29th of August a few months ago, or a few weeks ago. And then what happened? I'm not say probably two months ago. So let's go a few months ago now. Eight, nine weeks is more than a few weeks. So two months ago on the 29th of August, boom, you gapped up 12% that day on heavy volume. Average volume is two and a half million shares. That day you gaped up on 12 million shares.

You closed around 100. Now you're at 91, rolled over a little bit afterwards. Sometimes it just gaps up. You can look at Buildabair. BBW is a ticker there. Gaps up on the 29th as well, same as August, so same day as Best Buy. The stock was up about 15%, almost 16%, on heavy volume. And then it closed, whether they had 32, now you're at 38, a few months later.

And it hugged the 21 day on the way up, more or less. That would be an example of something that gaps up and keeps running. Now it's extended. But just a good example of, hey, sometimes these stocks gap up, and keep going. Sometimes they gap up and roll over. Sometimes they gap down. Keep going.

Sometimes they gap down, roll over. And then rally right back up. It all depends on the market and the environment. But I'm just, again, blanket statement, what I look for during earning season is the reaction to the news. And the same with economic data. Other little subtle signs of strength would be a weaker open and a strong close on any time frame, daily, weekly, monthly, you know, that kind of thing.

We open the week lower and then you close the end. at the end of the week higher. Or a subtle sign of weakness would be the opposite. Stock opens really strong. And then you get distribution selling, which I'll talk about in a few minutes too in the market, and then you close lower by the end of the period, the day, the week, the month, whatever the case may be.

It doesn't mean you have to go lower, you have to go higher. Just subtle signs of strength and or weakness, depending on where you open versus where you close. Right? So that's the biggest thing is the reaction. The second thing I look for for earnings data and economic data is what are the numbers?

and compare them earnings to the same quarter last year. So right now we're getting Q3 data, right? We're in Q4, Q3 just ended, and companies, for the most part, are reporting what happened last quarter. Great. We want to know what happened, what was a dollar amount,

let's say they earned a dollar, this, you know, in the third quarter of 2023, and then they report they earn a dollar 25 in the third quarter of 24. So earnings were up 25%. Great. That's growth. We like growth,

all things being equal, right? as growth investors, you want to see earnings growth. That's a simple thing. And then consensus, estimates. What the market, what the analysts expect? $1.50. They came in $1.25. earnings are up 25%, but they missed the estimates of $1.50.

That's another piece of the puzzle. Again, it's just connecting dots. It's putting pieces of the puzzle together. It's managing risk. Because everything in the market, it's risk versus reward, right? Should I buy the stock? Should I sell it? Remember, you're not buying a selling stock.

you're buying and selling risk. It's not my line. I wish it was. Someone told it to me a big money manager years ago. So, which I think is just absolutely brilliant. Absolutely brilliant. So I hope that helps give you some framework on what to look for for both earnings and economic data as we move forward over the next few weeks. Up next, we've got a lot more to cover. There's the music. It's amazing how fast time flies. I'm Adam Sarhan. I want to thank you very much for being here. This is the one and only Investors Edge. Hi, I'm Gary Kalbaum, hosted a nationally syndicated radio show Investors Edge. We're not just handsome radio people.

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Trofast storage boxes make sorting toys and art supplies easy and clean up fun. From primary suites to playrooms, IKEA has storage options that adapt to your life and help you keep what matters most. Don't sell anything you love. Store it instead. Shop IKEA Bedroom Storage today at IKEA.us. slash bedroom storage. Success starts with your drive,

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APU will fuel the journey. Learn more at APU. One sweet, melty bite of a Hershey's bar, and suddenly I'm right back sitting on the front porch with my grandmother on a slow summer afternoon. She doesn't say much, just breaks the bar in half and hands me a piece. I open my mouth to say whatever a nine-year-old wants to say. And she replies with a low, listen. So we sat there, listening.

That was the first time I learned that quiet can feel full. Hershey's. It's your happy place. It's time to switch on the integrator units and get the brain cells working. You're listening to. Hey, this promises to be fun. Investors Edge. The last bastion of quality programming. With Gary Coltbaum.

It doesn't get better than this. And welcome once again to Investors Edge. In case you're just joining us or missed any part of the show, you can go to GaryK.com. Pause, rewind. Fast forward at your convenience 24-7. on any device you want from anywhere in the world, all for free on GaryK.com. All right. So we covered the market, gave you some notes from Gary, spoke about earnings season,

Econaut, we have a big week in front of us. Energy prices are coming down a little bit. We spoke about the fact that higher energy prices are served as an indirect tax on both consumers and businesses. Lower energy prices tend to be accretive, especially for airline stocks, cruise lines, so on and so forth. All right, a few other things. The 10-year yield, of course, watch that.

And then Bitcoin has a big trading base. Those are notes from Gary. We want to make sure I cover that. And then we spoke about earning season. And we spoke about economic data. We have a big week this week, right? With culminating on Friday with the jobs report. And then I showed you what I do during earning season and economic data is I want to handle both the, you know, look at the reaction to the news and then look at the actual numbers and then compare those to the estimates.

Because you can have a good beat, but the company misses estimates or lowers guidance or or or and then the stock goes down. But earnings were great because the market's looking forward. So I wanted to bring that point up also. All right. Next, the concept of distribution. So distribution means the market, a distribution day technically would be a day where the market is down on higher volume than the prior session. Typically a down day, not down by 10 cents or 20 cents, but, you know, half a percent or more, a percent or more, percent and a half or more, depending on the index you look at. and a heavier volume than the prior session.

That's a subtle but important sign of little selling. Distribution means selling, right? Accumulation would be the opposite. Accumulating is when you're buying stocks would be a high update on heavier volume in the prior session. Now, after a big move up from August to low up until now, we've had a good move in the indices

and we're beginning to see some distribution showing up in the month of October. Again, not the end. of the world. Price is primary in my world and everything else is secondary, including volume. Why? Because what shows up on your statement? Price. Everything else is important, but takes a backseat, in my opinion, to price. Because price is a single, the term, element, or variable that determines whether or not we make money or lose money in the market. All right. So, that being said, we've got a few things to keep in mind here.

first off we have distribution date I want to give you the concept or just to help you understand the concept of distribution days the cut when you have a flurry of distribution day let's say one or two or three distribution days no big deal in a small period of time three weeks four weeks whatever the case is five six weeks no problem because as the weeks go by you know this is a new week last week's over now we have a new week and then next week we'll have another week and so on and so forth the prior distribution days kind of become less relevant right time he'll long moon's kind of thing. As time passes, distribution days kind of fall off the count, five, six, seven, eight, nine, ten weeks down the road. You know, the distribution days from

May or at this stage are really not important, not relevant. So in the last three or four weeks or five or six weeks, depending on how you want to, how wide you want to look, I keep track of the distribution days. Investors Business Daily has a great concept if you want to learn more about this concept of both accumulation distribution days. And I keep track both, accumulation distribution. But if you see, you know, three or four distribution days in a short period of time, that's okay. No problem. It happens. But after a big move up, like we're just happening from August up until now, and then you see, you know, three or four handful of addition base, four or five distribution days show up, which we've had so far in the month of October.

Yeah, a little bit disconcerted. Not the end of the world, but just something I'm watching. A distribution day could even be stalling action where you're up for the day. you get selling, selling, selling pressure. By the end of the day, you close in the lower half of the range. You're still technically up on the day, but it's got like a big sell tail or it's just closed and lower half of the range. That could be some subtle distribution as well.

But either way, as a Friday of last week, you know, we had six distribution days show up so far this month. Now I'm kind of getting, think of like green light when you drive. There's yellow light. Yeah, slow down a little bit and then red lights, okay, stop. To me, now we're in that yellow light phase. Hold on a second. This rally's not over by any way.

way, shape, or form. As of right now, things are fine, right? Watch the 21-day moving average in the S&P 500. Watch the 21-day moving average in the NASDAQ 100. Watch. And then after that level, really watch the 50-day moving average in both of those, because that's really front and center right now as the next big level of support to watch is that 50-day moving average. And the shorter term would be the 20 or 21-day moving average. But for now, market's acting fine, no problem. but under the surface, I'm beginning to see, you know, about five, six distribution days show up. As we go forward into this week and next week, if we get another three or four distribution days coupled with heavy selling, then, hey, this rally might be under pressure, we might be in for a

pullback and or, and or, right? Maybe things, like Gary says, the complexion could be changing. But for now, I just want to bring it to your attention. It's something I'm seeing. You know, I'm in the business like TSA says, see something, say something. All right, I see something. I see mounting distribution days show up in the market over the last few weeks this month in October. Okay, my job. Say something.

Here you go. I said it. Again, what does it mean? Sell everything go to cash? No. Just, okay. I can, again, price is primary, volume is secondary, just possibly a little bit of a change in the way that the market's going here. If we start getting some selling, that could be an early sign of, oh, okay, we're in for a little bit of a pullback here, which we're overdue for a pullback, right?

I think the S&P 500 has had two down weeks since August. I believe that's the right thing here. Let me double check to make sure I'm correct. Yeah, we've had only two down weeks. And one of those down weeks was last week, and last week it barely budged. So not to say we can't break out and go higher, we easily can in the NASDAQ-100, the QQQQQ, or look at the SMH, the SMH, the SME. semiconductors, just a, hey, all I'm doing is just a little bit of a yellow cautionary thing of not the end of the world, just something I'm watching and I'm paying attention to.

Because if we do see some more price selling, and 21-day breaks in the major indices, and the 50-day break, oh, okay, well, we saw the distribution days early. It was an early sign. And if it doesn't, instead we break out, like the NASDAQ 100 has good resistance here near 503, which would go back to July's high, or 503.52, and right now we're at 496-ish, or at four or 500-ish, let's just round up. Guess what? You can easily break out of here

and have a nice, another leg higher, which very well could happen. Maybe people are saying, right after the election, election goes smoothly, everything's good, easy transition of power, clear winner, boom, market breaks out and goes higher. That could easily happen. And we can just as easily pull back a little bit.

Even if things go smooth next week, right? Fingers crossed, they go smooth. I don't see any reason for them not to, but you never know, right? So they're in just, again, the concept of mounting distribution days. A little bit of a concern, not the end of the world. All right. Next.

What do you do with all this information? How do my gut earnings? You know, buy, sell, hold. Those are three decisions we can do in any given time. So with the market. All right. Well, if I have a cushion, the other big thing I do with earnings season is if I have a cushion in a stock more than 10% and I'm bullish on it, It means I own it.

It's a profit. The position's profitable. It's more than 10%. Earnings are coming up. Should I just sell it and blow out of it? Take the money and run? If it's more than 10%, I tend to keep it. If not, then I might look to either trim it or sell it in case it gaps down on me.

I'll talk more about that. Up next, we'll talk about how to handle earnings and a whole lot more. I'm Adam Sarhan. This is the one and only investor's edge. Ever feel like your bedroom's running out of space? Here's the good news. You don't have to sell your favorite things to make space. With IKEA bedroom storage solutions, dressers, wardroves, full closet systems, even storage boxes.

You can hold onto it all. Your vintage band teas? Keep them. Those limited edition sneakers? They stay. And yes, there's room for your childhood teddy bear too. Need to organize a walking closet? The packs wardrobe lets you customize shelves, rails, and compartments, so every item has a home. Too many clothes and not enough drawers.

The Stork Lint has six-door dresser is perfect for denim, sweaters, and everyday essentials. And if the kids are taking over your space, Trofast storage boxes make sorting toys and art supplies easy and clean up fun. From primary suites to playrooms, IKEA has storage options that adapt to your life and help you keep what matters most. Don't sell anything you love. Store it instead. Shop IKEA Bedroom Storage today at IKEA.us slash bedroom storage. Success starts with your drive. and American Public University is here to fuel it. With affordable tuition and over 200 flexible online programs,

APU helps you gain the skills and confidence to move forward. Whether you're changing careers, starting fresh, or pursuing a lifelong passion, our programs are designed for people who never stop. You bring the fire, APU will fuel the journey. Learn more at APU.APUS.edu. One sweet, melty bite of a Hershey's bar and suddenly I'm right back sitting on the front porch with my grandmother on a slow summer afternoon.

She doesn't say much, just breaks the bar in half and hands me a piece. I open my mouth to say whatever a nine-year-old wants to say. And she replies with a low, listen. So we sat there, listening. That was the first time I learned that quiet can feel full. Hershey's, it's your happy place. Investors Edge.

He's got to be pleased with that. The crowd is just on his feet here. He's a Cinderella boy. With Gary Colbomb. It comes highly recommended. You're going to feel better if you talk to him. And welcome once again to Investors Edge. In case you're just joining us or missed any part of the show, you can go to GaryK.com.

Rewind, fast forward, pause, listen to it at your convenience 24-7 on any device you want. All right. I always like to leave tangible things. takeaways, something you can do with the information, right? So, earning season is front and center. Clearly, we have hundreds and hundreds and hundreds and hundreds of stocks coming out with earnings over the next few weeks. What do we do, Adam? Here we go. Let's have some fun. So if I have a position and I have a 10% gain or more, 20%, 30%, 50 or whatever the case is, and the stock's acting well, meaning it's above its 50-day moving average, it's near a new high or it's at a new high,

I'm going to hold it. I'm not going to sell it. I don't want to be shaken out prematurely based on fear. Now, if I bought a stock recently, or let's even forget that, let's say I'm looking to buy a stock. I like XYZ, but they report in four days. Yeah, most likely I'm not buying it. Actually, I'm not going to buy it unless if there's some major change and there's some unforeseen event.

But for the vast majority of time, 99% of time, I'm not buying a stock if it's going to report earnings within 19 or 20 days of the time of purchase. Why? Because there's five trading days in a week and there's four days in a month or four weeks in a month. So on average is about 20 trading days in a month. I want to have time for that stock to go up. Give it time for a cushion to be developed, a profitable cushion of hopefully more than 10% by the time they come in. to earnings. If I buy it today and they reports in three days or seven days or even eight, 10 days, whatever, it's going to be a very short amount of time. And rarely do you see stocks have

huge moves, two, three, four, five, six, seven, eight days before earnings. Sometimes, but it's rare. Most of the time, you know, profits himself, it doesn't matter your strategy, it requires some element, some element of time. Profits are a function of time, right? So not necessarily the more time You give it the more profits you have because that doesn't always work. When the stock goes down, it works against you. So it's when things are going up, right? It does take time to earn for that stock to go up, 10%, 15%, 20, whatever the case may be. But the mindset is critical.

So if I buy a stock and have, let's say, 30 days to go before earnings, great, I can give it time. And then as we get close towards earnings, if I'm not up 10% or more, I'm probably going to sell it. Or I'll trim it, cut it in half. I don't want to take that risk of having a big gap down on me and having my profits or no profits if it's just break even or down 2% or whatever. Anything below a 10% gain could be gone in a flash.

That risk is not worth it for me. So most of the time I'll even sell it or trim the position substantially. So it barely, it's a blip on the radar for me. What I much rather do is wait and then buy a gap up. Like we spoke about those big breakaway gaps, right? That's much better from a risk to reward standpoint for me because if it gaps up, that shows me, hey, the big institutions like it,

I took out the earnings gap down risk and I have no problem buying that breakaway gap. And if it doesn't hold, hey, I can put a close stop and get out. below the low of the gap or below my entry point by 5% or 7% or whatever the case may be. Each case is different, but from a risk-reward standpoint, it already gapped up. I'm buying it the day after reports earnings or the day it gaps up. Great. Whenever earnings are reported, if it reports the night before, I'll buy it the next day. Like if it reports after the closed today, great, I'll buy it tomorrow.

Because it's closed, right? The market's closed. And they come out with earnings. And then, okay, the next trading day, I'll buy it. If it reports tomorrow morning before the open, I'll buy it that day. depending on whenever I can trade and buy it during market hours. But I want to see that gap up. That eliminates a lot of risk.

If I don't own the stock at all, and I'm looking at it, hey, many times a stock just gaps up big. It's too much of a gap. I can't touch it. Let's say it gaps up 20%. There's not, I mean, I don't know what to do. Where am I going to exit? Before I enter any stock, I always ask myself three questions.

first, where am I going to enter? Second, where am I going to exit? Third, how much am I going to risk if I'm wrong? Why? Because those are the three most important questions for me, from my standpoint. Where am I going to enter? You can write it down if you want. Where am I going to exit?

And how much do I risk if I'm wrong? If the stock is a leading stock and it's acting great and it's doing well and then all of a sudden it rolls over and gaps down on me big, guess what? And I had a cushion. My cushion's erased? No problem. hey, it didn't work out. But at least I had a cushion to protect me. Hope that makes sense.

And as you go through earnings season, it'll give you some actionable framework to use if you're so inclined. So that's how I handle earnings for the most part. I want to see the gap ups. I don't mind buying a gap up if I have a good exit. If it's up 20% on earnings and I don't have a good exit, I just won't buy it.

I'll wait for it to settle down a little bit. but I'll keep watching it, and then maybe it moves sideways for a few weeks, and then it breaks out again, I can buy that. Again, it's all about risk versus reward. Really, really, really, really important. Why? Because they're the best investors I know, and I've studied successful people, the most successful people I know, have framework.

They have structure. That's the word. It's structure. some way, guidelines, rules, whatever word you want to use, framework, you know, labels aside, they have some way of making sense of all the data that's out there because there's a lot of noise. In fact, most of it is noise. And they really are able, and this is a superpower, folks, to simplify it.

So a five-year-old can understand it. Oh, stocks going up. make money. You buy it for $10, it's now $15. Is that good or bad? Good. Thumbs up. Like, that's simple. Right? Enter. Exit. Risk. So keep that in mind. I hope that helps. Number one. Number two, keep that in mind. And then when things change, they change quickly in the market. This is another very important point. Things change fast. For example, you have young kids, the milk somebody spills the milk, right? Well, clean it up. You can sit there and stare at it. You can get angry. You can get upset. You can be in that reactive state. Best thing to do, stay calm.

Get some paper towel and clean up the milk. And then learn from it. Why did it happen? Was the cup too close to the edge of the table? Did we not close the cover for the milk? So you don't repeat the mistake. But the first thing to do is clean up the milk. And then learn from it.

Same thing with the market. You have a big gap down. You have a big gap up. Things change quickly. If you need to take action, you can stand there stunned. Oh my God, I can't believe the milk spilled. Oh, my God, I can't believe the stock gapped up or stock gap down or or or or. And again, I'm just telling you what I do.

Everyone's free to do whatever they want to do. By all means, I know people that go in there and buy the gap downs. I mean, that's what they do. Different style than mine doesn't work for me. God bless them. I like to say there's an infinite number of ways to make money in the market. Your job is to find one that works for you. So find that milk spilled, clean up the milk and then learn.

It's just a mistake. Learn from it. In the case of the milk spilling, right? Oh, we shouldn't put, hey kids, let's not put the cup next to the side of the table because your arm could accidentally hit it and it could spill and then the cup breaks and the milk's all over the place. The other scenarios, people get upset. They yell and they scream and they get angry. Emotional is so important.

You're taking your emotional temperature, understanding your emotional IQ or where you are emotionally, your emotional reaction to whatever that external event is, is moi and portante. Super important. Most people are making emotional, not rational decisions, but they think they're making rational decisions, especially with their money. Don't believe me? Ask yourself this question. When was the last time you bought a stock that you really hated? When was the last time you bought a stock that you really liked and then found logic that helps you justify that decision? That's the case for most people. Oh, I really like XYZ. What are the reasons to buy it? Well, it's going up, it's going down, it's cheap, it's not cheap, it's expensive, you know, volume, price. You find reasons

that support your decision because decisions based on emotion most of the time, not logic. Most of the time. Not everybody, but most of the time. So what I try to do, the whole point of my book, which is thankfully thanks to everybody, psychological analysis, it was number one in Amazon every day for three months, is to learn how to make rational, not emotional decisions, with your money. The milk spills, stay calm. Clean it up. Learn from that mistake so you don't repeat it. That's critical. Oh, maybe I chased the stock. Maybe I didn't have a cushion. Maybe I held it too long into earnings. Maybe, maybe learn so you can hopefully not repeat that mistake again and again and again. And sometimes things just go the wrong way. It's not even a mistake.

Just because the outcome didn't fit your desired outcome. Didn't mean necessarily it was a mistake. Up next, we've got a lot more to cover. I'm Adam Sarhan. This is the one and only investor Ever feel like your bedroom's running out of space? Here's the good news. You don't have to sell your favorite things to make space. With IKEA bedroom storage solutions, dressers, wardroves, full closet systems, even storage boxes. You can hold onto it all. Your vintage banties?

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storage. Success starts with your drive, and American Public University is here to fuel it. With affordable tuition and over 200 flexible online programs, APU helps you gain the skills and confidence to move forward. Whether you're changing careers, starting fresh, or pursuing a lifelong passion, our programs are designed for people who never stop. You bring the fire, APU will fuel the journey. Learn more at APU.APUS.edu. One sweet, melty bite of a Hershey's bar, and suddenly I'm right back sitting on the front porch with my grandmother on a slow summer afternoon. She doesn't say much, just breaks the bar in half and hands me a piece.

I open my mouth to say whatever a nine-year-old wants to say. And she replies with a low, listen. So we sat there, listening. That was the first time I learned that quiet can feel full. Hershey's, it's your happy place. You're listening to. What are we waiting for?

Well, what are you waiting for? One, two, ready, go. Inversters Edge with Gary Culper. And welcome once again to Investor's Edge. In case you're just joining us, from with any part of the show, you can go to GaryK.com, rewind, fast forward, listen live or archive, anytime you want on GaryK.com.

If you want Gary's premier subscription or its premium service, excuse me, you can go to convictionleaders.com and take a free trial. And if you like it, stay. You don't like it. You cancel. During the trial and you won't be charged anything. So that's all available at convictionleaders.com. If you want Gary's takes, he gives several notes throughout the day,

he gives nightly webcasts. He does weekend webcasts and shows you leaders and a whole lot more. So earnings. We talked about a lot so far and giving you some just broad framework on how I navigate earnings season. some of the things that go through my mind as I make decisions. We left off on the outcome being different than the desired outcome. That's called cognitive dissonance or some kind of unhappiness, right?

I'm happy when the outcome is better than my expectations. My kids are still young. They're in school. My son's in third grade. My daughter's in seventh. In the third grade class, they have something called EEE exceeds expectations. that explained to a seven-year-old and eight-year-old, what does the word exceed mean? Here you go.

It's above. It's higher. Simplify, simplify, simplify, right? So you have the market exceeds expectations. The market's happy. You're happy when the event happens that's better than your expectations. When it's lower than expectations or below your expectations, most of the time you're not happy. The outcome, there's something called outcome.

bias in psychology. I won't get too deep into that, but real briefly, it's making a decision and then judging the merit of the decision based on the outcome. That's a no-no. That's not good. Why? Because maybe I blindfold myself and I cross the street and I get to the other side. The outcome was positive. But if I do that a thousand times, there's a very high likelihood I get hit by the proverbial bus. Therefore, that specific situation Even though the outcome was quote unquote favorable, yeah, what's wrong? There's nothing wrong if I blindfold myself when I cross the street because I didn't get hit by a bus that one time. With that trade, I bought that stock.

It went up, right? That's called outcome bias. Any one trade, for the most part, if the risk is managed, position size is done properly and so on and so forth, it shouldn't move the needle in a massive detrimental way for you. If you manage risk, right? You keep risk small. one of the superpowers of the successful investors. When you're wrong, just be wrong small.

So any one trade, you're not going to blow up. That's the whole idea, right? Stay in the game. And the whole idea is make money. It's capital preservation first and then capital appreciation. You can't have the capital grow if you don't preserve it. So preserve it and then grow it. Real simple.

So, okay, great. When you make a decision based on the information in front of you at the time, and then you do that a thousand times or a million times or 100,000 times, Hopefully, this is what's called a positive expectancy. Hopefully, you're going to be able to be wrong. Let's say you lose one unit when you're wrong. And when you're right, you make three, you make five, you make ten. That's a winning formula.

Because what happens, it gives you the ability to say, oh, hold on a second here. The decision itself was a right decision. Even if the outcome wasn't what I wanted, that's okay. Why? because again any one trade as long as the risk is managed and put any other disclaimer you want in there if the risk is small it's okay you're going to have losing trades as long as you manage your risk it's okay you know go back to my kids i was playing madden with them on the Xbox or Nintendo whatever it was and you know one of the kids lost the game it's okay said you got to learn how to lose gracefully

what does gracefully mean wow i just got to simplify my language more. You know, you know what good sportsmanship is? Because they just learned that. Yeah. Okay. Make sure what you're doing is good sportsmanship. Lose and be, it's okay. Be happy for the person that won. There's no reason to be upset. It's okay. It's going to happen. And it's, that's okay. As long as you keep those losses small. So that's a big piece of the puzzle also. All right. In closing, I know we're short on time now. The other big point that I want to bring to your attention before we wrap up in the final minutes is understanding that no matter what happens in the market, it should not impact the day-to-day well-being inside my brain.

I can't speak on anyone else's behalf, but on my brain, something I've learned, which I want to share. Happiness is a choice. You control it. The external events of the market, getting stopped out, you know, could be very frustrating. I used to get really emotionally invested and upset and or enter any other negative emotion you can possibly think of. Get down on myself, be hard on myself, so on and so forth, when I would lose. And then I realized over time, it happens everybody. Even machines lose. Nobody that I know has a hundred percent perfect trading record, right? The World Series is going on now. The best baseball players strike out three out of ten times thereabouts, right?

They cracked the ball and they hit three times, six, seven times or more strikeouts than hits. How about that? You know, Aaron Judge was up and the Yankees and he hasn't cracked a homer yet. Maybe I think so at a homer, whatever it was, right, so far against the Dodgers. Doesn't mean the guy's not going to crack one next time. Maybe tonight he cracks one. Who knows? Point is the guy strikes out more than he swings.

Babe Ruth, all these great baseball players. Same thing in trading. because it's asymmetric risk to reward. When you're right, you can be right big. You hit a grand slam. You hit a home run. When you're wrong, you lose one point. You're one out.

When you're right, you can make four. That's a winning trait. Like apple trees, right? The law of nature. Has a thousand seeds. I'm making this up. Whatever the number is, I just call it a thousand seeds. 99 are not going to work.

Nature loses one every time it doesn't work. When it's right, has a new tree. And a new tree makes infinite number of seeds. Why? because that tree is going to make another thousand seeds. 99 are not going to work. Nature's going to lose one every time. The one that works has another tree.

And then so on and so forth. Right? So it's not literally infinite, but it's asymmetric reward compared to the risk. Risk small. When you're wrong, be wrong, small. When you're right, be right big. Over time, it's a winning formula. Even though you're wrong more than you're right, that's okay if you manage the risk.

And you have that asymmetric, you know, the small loss and big win. And then if losing is part of the process, there's no reason to compound that loss with emotionally beating yourself up and being frustrated and being upset and so on and so forth, which I did for many, many years. They say a wise man learns some mistakes, a wiser man learns from other people's mistakes. In this case, be the wiser person. Right? I made that mistake. Learn from it. You don't have to. Think of it as a trade.

There's no trade in putting that, there's no upside in beating yourself up after a loss, right? Learn from it. It's okay. It happens. So it's all the time we have for today is always I want to thank you very much for being here. This is the one and only Investor's Edge. Do like Gary says, hug the children, hug yourself.

Biggest winners are in front of you like Marty Schwartz says in the great book called Pitbull. Have a great night, everybody, and I'll speak to again soon. This has been Investors Edge with Gary Cult Bomb on BizTalk. To listen to past episodes or to get in contact with Gary, go to GaryK.com. That's GaryK.com. Success starts with your drive. An American Public University is here to fuel it.

With affordable tuition and over 200 flexible online programs, APU helps you gain the skills and confidence to move forward. Whether you're changing careers, starting fresh, or pursuing a lifelong passion, our programs are designed for people who never stop. You bring the fire, APU will fuel the journey. Learn more at APU.APUS.edu. Guys, it's no use putting it off.

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