reporting season stocks

Survival guide to navigate through reporting season


The information in this article is market commentary only and reflects Lincoln's views and beliefs at the time of preparation, which are subject to change without notice. To obtain up-to-date information, please contact us.

It is an exciting time to be an investor, as our businesses release fresh financial accounts to market. While mining stocks were the poster children of 2016, observers are watching to see if the fundamentals of these businesses and their future prospects have caught up to the recent price run. And will the sell-off of many ‘‘high-PE/high-quality’’ stocks in the second half of 2016 present an opportunity to snap up great businesses at a bargain?

As a backdrop, global macroeconomic concerns have lingered over our market like a London fog over the Thames. The good news is that economic conditions are still accommodative, and investors who have the ability to be selective and conduct appropriate due diligence on businesses stand to benefit.

As disciples of a bottom-up financial analysis approach at Stock Doctor, we tend not to listen to the negative “noise” or speculative “enthusiasm” that leads many to make irrational investment decisions.

Here are some proactive steps you can take towards successful portfolio management during this important time.

It’s always best to remind yourself of why you are investing in the first place. Be it either for capital growth over the long term or to fund your immediate lifestyle needs from income, reminding yourself of “why” will help when you need to decide “what” to do next.

Newer investors can be tempted to jump into a company before it reports, particularly if the price has had a good run. While the pay-off can be substantial if you happen to get it right, you risk significant falls within a short time frame if you misstep. It may be prudent to wait until a company reports. At Lincoln, we’ll analyse the numbers first before we decide whether to invest.

Too many investors hold on to fundamentally inferior businesses for too long. This easily occurs when the fundamentals, including a company’s financial health, have deteriorated and/or a short-term speculative bet has gone wrong. You need to remain disciplined and sell these stocks. The good news is that you’ll be freeing up cash to invest in new opportunities and avoiding the cost of holding on to underperformers.

The good news is
that economic
conditions are still
accommodative.

Aim for once a week to perform your entry and exit trades, as your companies release their latest reports. Rebalancing will reduce the risk of having too much exposure to any single business by taking profits off the table, and allow you to seize an opportunity to buy a great business at a cheaper price.

Applying a methodical and disciplined approach to the reporting season is the best way to make an unemotional and fully informed decision on your portfolio. If you can’t dedicate the time to this essential task, while letting the fundamentals be your guide, you will miss out on a period that will often make or break the returns you can potentially achieve.

Published Wednesday 15 February 2017
AFR The Australian Financial Review | www.afr.com
Important: Lincoln Indicators Pty Limited ABN 23 006 715 573, as Corporate Authorised Representative of Lincoln Financial Group Pty Ltd ABN 70 609 751 966, AFSL 483167. This blog may contain general financial product advice. It has been prepared without taking account of your personal circumstances (including your objectives, financial situation or needs) and you should therefore, consider its appropriateness in light of your objectives, financial situation and needs, before acting on it. You should read and consider our Disclaimer for more Important Information and our Financial Services Guide (FSG) which sets out key information about the services we provide. The Disclaimer and FSG are available at www.lincolnindicators.com.au.

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