Okay, so you want to know how Monsieur Rhino plays earnings do ya?

1. The most important thing is guidance, and this requires a great deal of fundamental research. I know it’s shocking, but charts will not tell you which metrics investors are looking for. For example with tech companies like P or FB it’s all about monetizing mobile. Know this, and try to to get an edge on it.

2. Just because a company beat or misses does not mean they are going to trade that way. Example again, I was short into both P and FB’s earnings. P beat, but had horrible guidance, so my short worked great. FB missed but had “great” guidance, thus the puts I owned got clobbered. So again, know what investors are looking for, this is what drives the price action.

3. Small caps are a different beast, and I no longer play them. Even companies like HDSN and EVI, that continually crush it, are unpredictable, and thus not worth the gamble. (They are great long-long names though)

4. Know the analysts that are covering the name. What is their track record? How many times have their estimatea been close to the actual report? Most of these momos are egotistical idiots, thus, they never think they are wrong and it’s easy to bet against them. When I was a sophomore in college I went to a value investing conference with my mentor, I was bearish on a few names, and one of the analysts there from MS was covering one of my shorts, when I asked him, he could not produce the chief risk in the company’s S1. Easy to win against that.

5. Price action the day of earnings is extremely important. I find the highest importance to be a lack of volatility. Look at ISRG going into earnings, it was solid and stable. Today we have AMZN, look at it, beaten down and all around. This tells me investors either “know something” or they lack conviction. When medium/boutique firms have conviction, that’s when you know you have a good one.

6. I make my decision the day of earnings (or the day before if the report in the morning), usually in the last hour of the trading day.

7. You MUST have personal conviction, as there are so many pieces to the puzzle. If you are worried about it, don’t trade it. If you do the research, you feel much more comfortable. A way I augment this, is knowing and talking to people who work for or have worked for the company. Not for insider information, but just what they think about working for the company. The folks I know who work for ISRG and GILD absolutely love their jobs and believe in them, whereas the folks I know who used to work for ZNGA hated their jobs and quit. You can tell a lot about an Army by how willing it’s grunts are to fight.

I am not decided on AMZN yet. At first I thought I was bullish, but now I am leaning towards bearish.

Feel free to ask me any and all questions below.

“Who Dares Wins”

EDIT: I knew I was bearish on AMZN, especially the more and more I talked about it on Twitter. I’ll be looking to short it tomorrow.

EDIT II: Um, maybe not… WTF?

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