LESSONS FROM REPORTING SEASON

Ok, I've been through quite a few results seasons since 1987. There are always good results, average results and poor results. Every reporting season has its pluses and minuses. Again this time there were good and poor results as always. What I found a bit different this results season was that it was a bit of an emotional rollercoaster for me. Why? Usually, I quickly go through the result before looking at the SP and have an idea of what to expect before looking. There is usually a good correlation with the SP and my expectations; this results season saw more than usual volatility. No big deal, but shifting sand. Secondly, through my customised benchmark, I monitor a universe of potential stocks, and so far this FY, we can clearly see a change in the leadership, and this results season further cemented that change. There is clearly a broadening of participation, especially in the Australian market. Leadership changes are due to several things, and they are difficult to pin down. It could be that the former leaders are now expensive and losing momentum, investors are getting bored and need new stories, or there is “catch-up” going on, some form of mean reversion. We can observe it, but correctly identifying why it is occurring is another issue. Of course, guessing how long the rotation occurs, be it one week or one year, we do not know.

The other thing is what to do about it? My answer is not much except to be psychologically prepared for that scenario. Where you have been doing well, but we are entering a period where you may not do as well, or even lag, who knows. I haven’t seen many (none) in my career that can consistently catch these market changes. We know that the market is a chocolate wheel over the short term (0-1 year) and starts to correlate with earnings the further you look out. This ride is volatile.

Therefore, I stick to my investment philosophy and process, which I can execute and have a belief that in the long term will do very well, but there are times that it won't, be prepared. If any process always won, it would be arbitraged out of existence; the randomness scares off investors and therefore creates the opportunity for LT investors.

Finally, think carefully before changing an LT winning formula because of any ST upsets. The numbers in aggregate are ok for me this results season, but they came unexpectedly, that happens, don’t panic. Stick to the process.

That's my Saturday morning ramblings, now for a well-deserved breakfast, I'm exhausted lol