"Every battle is won before it's ever fought." -- Sun Tzu
NEW YORK (TheStreet) -- The hyper-active and borderline desperate Twitter (TWTR) feeds for Under Armour (UA) and Amazon (AMZN) illustrate the gap between what many shareholders think is a positive earnings report and what actually is.
Immediately after reporting earnings on Thursday, shares in Under Armour, Amazon and Microsoft (MSFT) popped higher, but only Microsoft continued higher. All three increased revenue. From an operational point of view, they all executed extremely well. But their performance diverged.
Let's examine the differences and how investors can empower their portfolios with other holdings and profit from future earnings releases. The first rule of earnings season is to never chase a stock unless you're taking a stop loss. If your trading desk doesn't include a Bloomberg terminal or another equally fast wire subscription in unison with computer-directed trading, you're fighting a losing battle. 
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"Every battle is won before it's ever fought," said Sun Tzu, and we all know it. But do we live it?
Are you reading the SEC filings and taking the time to understand what's happening below the surface level? Keep in mind that a company and its stock are two decidedly different things. For example, Under Armour and Amazon increased revenue, demonstrating strong demand for their offerings, and yet the stock fell.
For investors, it's more pertinent to understand the stock than the company. It may appear counter-intuitive at first, but investment decisions should focus on the stock first and company second. Understanding the stock requires a full comprehension of the company filings.
Reading Qs and Ks (quarterly and annual reports) may be an insomnia cure for people who don't respond to strong medication -- a hat tip to Robin Williams -- but they're gold mines of information. Anyone can read the reports. But understanding what to look for, and how to read past a presentation that is sometimes more useful to management goals than investors, separates those in the know and others playing a guessing game. If you want to know what to look for, I suggest picking up Wiley's Financial Statement Analysis: A Practitioner's Guide, by Martin Fridson and Fernando Alvarez. It's a great read for non-finance majors. Plus it will be worth its weight in gold the first time and every time it helps you find information buried within an earnings report. The fourth rule, and this one is broken on a daily basis for reasons I don't understand, is that if it's common knowledge, it's priced in and doesn't matter. Using Amazon for even one moment, everyone knows that the company has an advantage over small bookstores. Amazon has invested heavily into its logistics system and is able to move books and other products from supplier to your home at a lower cost than most others can. Every bit of public information is already priced into the stock. Unless you know something almost everyone else doesn't, the information isn't valuable. In fact, relying on common information is often detrimental. Under Armour's earnings release demonstrated enormous growth, but everyone and their brother already expected it. As a result, when the company didn't crush the already mile-high expectations, the stock quickly sold off, causing an avalanche of sellers rushing for the exits. As an independent investor, your greatest advantage is focusing on industries you already know about. If you're in the sportswear industry and can see trends before they show up on analysts' spreadsheets, you have an edge over money managers. I don't mean inside information that regulations prohibit insiders from trading on. If you work in a medical office and notice a new product or an improvement to an old product that you like and others like, it's probably worth your time to investigate the company that produces it. Now let's go full circle and examine the chart patterns for our three earnings-related stocks.
Stock quotes in this article: TWTR, UA, AMZN, MSFTIf you're stuck in Under Armour, I think your prospects are much brighter than with Amazon. But don't expect the price decline to bottom before Monday. It normally takes two or three days for an earnings disappointment similar to Under Armour's to become fully discounted. The sweet spot to buy on the dip is late Monday or Tuesday for a more conservative entry.
Amazon's problem is it doesn't generate a return on investment. I've written many articles about the perils of buying momentum stocks lacking a meaningful return on investment. The only thing keeping the shares above $200 right now is a belief that someday it will monetize its revenue. Everyone worth their salt knows that it's easy to generate lots of revenue in retail if you're willing to sell at the lowest cost. But the moment a retailer tries to increase margins, sales fall off a cliff.
I suggest taking advantage of up days as an opportunity to scale back or exit.
At the time of publication, Weinstein had no positions in any of the securities mentioned. Follow @RobertWeinstein This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
Stock quotes in this article: TWTR, UA, AMZN, MSFT
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