I have made more money doing nothing than I have ever made doing something. That sounds like a bumper sticker until you sit down and count it. Go back through your own account and add up what your best positions would have returned if you had left them alone. Then compare that to what you took out of them. Most people find the same thing I did. The selling is where the money went. You will make more in a ten day window than you will in the other 242 trading days of the year combined, and I am not exaggerating for effect. The biggest gains happen on massive breakouts, and those breakouts arrive after everybody has gone to sleep and quit. Think about what that means for how you spend your time. If ten days carry the year, then 242 days are spent waiting. And waiting badly is what

  I paid $1.14 for a put and sold it for about six bucks. The company I owned had beaten on revenue. Sales came in ahead of what the street wanted… And the stock had its worst single day in almost five years… That trade is why I want to talk to you today about the only rule I’ve got around earnings, because it’s saved me more money than any prediction I’ve ever made. I rarely hold a stock through earnings. When I do, I buy a put. There’s nothing clever in it and there’s nothing more to it than that. People hear it and assume I’m hedging because I expect bad news. I’m not. I buy the put because I have no idea what the reaction will be, and neither does anybody else. Let me walk you through the Kroger trade, because it’s a perfect example of why. I

  A company said one word on a conference call and the stock dropped 25%. The word was delay. Not a miss, not a guidance cut, just a warning that things were going to take longer than planned… And the chart gave you nothing beforehand. No topping pattern, no divergence, no signal… If you were trading that name off the chart, you were long into it. I want to explain what set the size of that drop, because it was sitting in plain sight and it was not on any chart you own. The chart tells you when. It cannot tell you how far. I have been doing this 40 years and I will put it plainly. Your chart is a timing tool. It is not a risk tool, and most traders size their positions off it anyway. What determines how far a stock can fall is the multiple, meaning

  A regional airline missed its earnings by 16 cents and the stock went up almost seven dollars. Say somebody handed you that report an hour early. You knew the miss was coming, you knew the size of it, and you shorted it. You got run over anyway. That’s the part nobody wants to hear. Having the number doesn’t help you. The number is not the trade. But there’s one filter that would have kept you out of that mess entirely, and I got it standing in my father’s office when I was eight years old. Never short a low multiple Never short a stock with a price to earnings multiple under 10. Never. That’s for dummies and it will bankrupt you. I’ve said it a dozen times and people do it anyway. The price to earnings multiple is just what you pay for a dollar of the company’s profit.

Microsoft had a 29-point expected move going into its earnings report. The stock jumped 16%, its biggest day since October 2008, and added roughly $450 billion in market value. That is the largest single-day gain any stock has ever posted. A lot of traders sat short through it anyway, and some of them aren’t trading anymore. That’s not hindsight. The 29 was published. It was sitting right there for anybody who bothered to look, and it told you exactly what you were walking into. Most people never look. They pull up a chart instead, and I’m telling you the chart is worthless the second a company reports. One number decides whether you can carry a position through earnings, and it gives you three possible answers. Screw the chart. It’s useless on earnings.  I don’t care what pattern you found or how clean the setup looked yesterday. A company reports and