Reporting season will soon be upon us as many companies will be releasing half-year results in February.
Investors will be inundated with lots of information but Stuart Fechner, head of research relationships at Bennelong Funds Management warns you shouldn’t get distracted and don’t let market noise influence your long-term investment goals.
“Company reporting season is a bit like the stockmarket’s version of a grand final, with the spotlight firmly pointed on those working towards the presentation of their financial results,” says Fechner.
“However, unlike a grand final, reporting season isn’t the ultimate decider of winners and losers. Companies don’t get to rest on their laurels afterwards.”
Fechner says it’s important for investors understand what impact, if any, these reports will have on their long-term investment strategies.
“For instance, just because a company’s share price drops following its report doesn’t mean there are problems with the company and investors should get out quick. There may be many reasons for a short-term drop in share price, which shouldn’t influence investors with a sensible long-term strategy,” he explains.
Fechner offers these tips for investors:
Reporting season is important for investors because it is one of the few times investors get tangible feedback from the market.
This isn’t just about a company’s previous performance. Understanding projections for the coming financial year is as important as the result itself. A company may report financials that are in line with market expectations, but any indication of a weak forecast will often result in a share price drop.
Investors need to avoid over-reacting to announcements made during reporting season.
As good, bad or indifferent company results are reported, there are three choices for investors: hold the current investment, buy more, or trim the holding (or sell completely). For most active investors, including fund managers, reporting season is part of the constant research into a company’s prospects, results and outlook.
Having clear expectations for every stock is critical.
Expectations should be compared to the broader markets, as that’s what sets the share price. There is little prospect for strong outperformance from a stock whose earnings perform in line with market expectations, however bullish they may be. To see any sort of share price increase on the back of a reported result, the result itself must typically be at a better level than the market was expecting.
Knowing and understanding individual companies is key.
This only comes from putting in the hard work on the ground, gaining the conviction you need and sticking with it. After all, we may be about to have the grand final, but there’s no off season in investing.