Important Tips for Navigating Reporting Season

Dale Gillham, Chief Analyst and Head Trainer of Wealth Within

By Dale Gillham |

Right now, the Australian stock market is in the middle of reporting season with companies sharing their full-year results. While it provides investors with insights into a company's financial health, it can also be a very challenging time for investors, as stock prices tend to be very volatile.

Why it’s better to avoid the market volatility of reporting season

In some cases, despite announcing record profits some companies fall heavily while those that announce record losses rise. It all comes down to the expectations from the big end of town and whether the company has missed expectations. In other words, if the big end of town believes a company’s profit should have been higher, they may sell the stock. Similarly, if the loss was less than they were expecting, they may buy. Confused? You are not alone, as many investors find reporting season very confusing.

It’s important to understand that reporting season is more for the big end of town than individual investors, so it’s a good idea to bury your head in a book or go on a holiday during this time because you won’t miss much. That said, some investors treat reporting season as a critical period that they need to pay attention to. So, here are my tips for navigating reporting season successfully.

You need to know when reporting season starts and ends, and the dates the reports will be released for the companies you are interested in. In analysing the results, it’s a good idea to compare this year's results with the prior year, as well as other companies in the sector. Once you’ve analysed the reports, you can decide which stocks you want to buy or sell based on the results. Remember, analysts can have biased opinions, therefore, you need to set realistic expectations based on their views and do your own research.

As I always say, short-term fluctuations in price as a result of reporting season are largely irrelevant and should be ignored because the longer-term trend is more important. While it can be very enticing to purchase a stock that is rising strongly in the short term for FOMO, this can lead to poor returns after reporting season ends. That’s why it pays to wait until after the volatility of reporting season ends to review your portfolio and the companies you are interested in buying because you’re less likely to get caught up in the emotions of the market.

What were the best and worst performing sectors this week?

The best performing sectors included Real Estate up 0.97 per cent followed by Healthcare up 0.96 per cent and Utilities down 0.09 per cent. The worst performing sectors included Materials down 4.32 per cent followed by Financials down 3.61 per cent and Communication Services down 3.34 per cent.

The best performing stocks in the ASX top 100 included Carsales up 13.37 per cent followed by Cochlear up 11.91 per cent and Goodman Group up 10.95 per cent. The worst performing stocks included the Star Entertainment Group down 11.74 per cent followed by Pilbara Minerals down 10.92 per cent and Evolution Mining down 9.92 per cent.

What's next for the Australian stock market?

The Australian stock market ended last week down 2.49 per cent and it appears as though it will fall further. This year has been a constant battle between the bulls and bears because just when it looks like one will be more dominant everything switches. Right now the All Ordinaries Index is currently up just under 2 per cent for the year, which is very disappointing considering there have been three periods where it has risen around 7 per cent over multiple weeks.

The market has also had three periods where it has fallen, one of which we are currently experiencing. We are now 32 weeks into the calendar year and in that time the All Ordinaries Index has closed higher than it opened for the week 15 times, while it has closed lower than it opened 17 times. This is why I continue to say that the market is lacking confidence, which leads to unpredictability and why we need to be cautious.

In last week’s report, I mentioned that it would not be surprising if the All Ordinaries Index fell away for a few weeks, and to be prepared in the event it did. Of course, last week’s performance validated my concerns. Right now, the market could fall for another one or two weeks before it turns to rise again. That said, as we continue to experience, anything is possible in the current market conditions, so it’s wise to expect further falls.

For now good luck and good trading.

Dale is an international bestselling author of the book 'How to Beat the Managed Funds by 20%'. He is also author of the bestselling and award-winning book 'Accelerate Your Wealth—It’s Your Money, Your Choice', which is available in all good book stores and online.

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