How do you handle reporting season?

Hi,

So with a lot of stocks reporting their FY results in August, does this change how you action the market? For instance, a stock you like has been heavily overvalued, sometimes simply by momentum and even though you still believe in that company, a report that doesn't meet expectations can be heavily sold off, think Technology One, who lost about 25% over a week on an really good report but the market had already priced in a better outcome. Usually I would just buy companies I believe in for the future but also aware that reports that do not meet expectation can create great buying opportunities.

Also to add, do you sell off a company who's report doesn't meet expectation or hold on regardless, assuming things will improve in the future?

Thanks

Eddie

Eddie_E said:

Also to add, do you sell off a company who's report doesn't meet expectation or hold on regardless, assuming things will improve in the future?

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I never do the "hope" part but I'll consider the information in the report and act accordingly.

I treat it much like the weather. If the forecast was for 30 degrees and fine, and it turns out to be 20 degrees and fine, well then that's a change but it doesn't necessarily mean I need to change what I was planning to do so long as it doesn't involve going to the beach. Just wear warmer clothes but apart from that carry on. If however it starts raining, well then that might require a more radical change of plan yes.

Same concept in the market. What's the change and, in view of the new information, what should I now do?

Eddie_E said:

So with a lot of stocks reporting their FY results in August, does this change how you action the market?

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Stock reactions to earnings reports can be really weird. A company may have a 25% increase in profit, but because they telegraphed that result earlier, the share price drops on the release of the earnings report. Go figure.

The way I react to drops personally, depends more on what the share price does over the medium term. A negative reaction to an earnings report could be a glitch which recovers over a few days. Or a previously hot stock can just go out of favour and not recover.

Thanks for your responses! You can see the way a lot of the stocks are 'priced for perfection', so unless a report improves from their guidance it will likely end in a fall! It could be an interesting August!