Big HF Positions for Analysts

As an analyst, how do you react during large moves in stock prices? The question you need to ask yourself is did something happen to change my thesis. If the answer is no, your first decision should be to either do nothing, or buy more.

Large stock swings will certainly cause panic if not in you, at the very least your boss, especially if he/she isn’t close to the company. When a company reports earnings and they miss consensus expectations, a large move downward may occur in the stock price. This may be a fantastic opportunity to buy more, if you think your thesis is still intact. The reaction of all of the holders that don’t know the story well will be to sell immediately, creating a great opportunity for you.

You just need to make sure nothing material changed. For example, if the company the quarter because they ran a lot of advertising campaigns and their marketing expense was higher than expected, that seems like it wouldn’t have a big impact on the long term outlook, so it may be a good buying opportunity. But if the company missed because they lost a key customer, and had to spend a lot more money on marketing to secure a new anchor customer, now that might be an entirely different story.

The key is to ask yourself, and be able to answer it honestly, and not rationalize, did anything thesis changing happen. If not, don’t sell!