Reporting season is a busy and often stressful time for investors.
There’s a deluge of information to digest, synthesise and (potentially) react to. And all at a time when the broader market is responding in significant, and oftentimes unexpected ways.
Well, I’m here to tell you that it doesn’t need to be this way.
The reality is that you’re never going to be able to get ahead of any market moves anyway — nor, indeed, would you necessarily want to. Quite often the initial price reaction is wound back, and then some, as was demonstrated last week with Data#3 (ASX:DTL).
With results released pre-market, the initial market price reaction was a 5% fall, followed by a 9% intraday high…only to trade 6% down from pre-release levels by the end of Friday.
Yeah, markets aren’t as efficient as many people like to make out.
So if you can’t front run the market’s reaction, what’s the rush? I’d argue that it’s not the pace at which you move, but the direction in which you travel.
Take your time to properly internalise the new information. And, whatever you do, don’t let the Mr Market influence your own interpretation too much — he doesn’t usually have much of a clue anyway.
Remember, the market is there to serve you, not to inform you. And the worst thing you can do is be emotionally reactive to short term volatility
It’s also worth remembering that while you share the field with a wide variety of players, a lot of them — perhaps even most of them — are likely playing a different game to you.
Did you really buy shares because you (or a bunch of analysts) felt that the most recent period would see a 3.5% lift in earnings, instead of the 2.8% that was delivered? Is your investment thesis really busted on that basis alone?
Next, take heed of General MacArthur’s advice: Preparedness is the key to success and victory.
The more you understand a business, the deeper you have pondered its future, the better you’ll be able to synthesise new information. Approaching results with a well constructed framework gives you an immense edge over other investors.
Lastly, and perhaps most importantly, go easy on yourself if indeed you realise you have made a mistake. No one can predict the future, and things come out of left field all the time.
The real mistake is in not having the humility and objectivity to recognise the error and, worse, to double down on it.
Bottom line: reporting season doesn’t have to be a frenzied rush. Take the time to carefully consider new information within the context of your broader thesis, without being swayed by Mr. Market’s short-term mood swings.
Investing is a marathon, not a sprint, and the edge lies in thoughtful preparation, patience, and the ability to adjust when needed.
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