On last week’s Mad Money, game show host Jim Cramer told his acolytes “to pick up [Best Buy] BBY before Tuesday morning’s announcement.” First, trading stocks ahead of earnings is the riskiest aspect of trading. Most professional traders close their positions ahead of earnings and decide what to do after the announcement. The reason for this risk management strategy: guessing earnings is a complete gamble.
Enter our circus show friend Jim Cramer. While Jim is busy telling people he’s trying to make them better investors, here he is (again) giving investment advice to use the riskiest tactic in trading. Well, I am sad to say Jim’s ESP was dim, and those who started buying BBY into earnings are now getting slammed. The company missed expectations for margins, and the stock is trading down almost 7% as I write.
As Jim says in his Stock-Picking Rules to Live By, “Just because someone says it on TV doesn’t make it so.”
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