‘The only way to make sense out of change is to plunge into it, move with it, and join the dance’ – Alan Watts

I might be on the cusp of entering my twenty second year of my professional investment career but, the feeling around twelve or fourteen days into every new quarter that the information dump that is the new earnings season is set to commence, never fails to excite!

I should explain.  In pretty much every major economic power outside of the UK every quarter most corporate names publish their latest revenues, profits and other useful information for investors.  As you can imagine – especially when the UK companies also join in with their typically less regular interim and full year updates – it can get rather busy…but for anyone fascinated by markets it is like catnip.  Once the world of the stock markets gets you…it gets you bad.

The simple reason for my excitement is the provision of new information that needs to be interpreted.  In reality there are only two factors which really push individual shares up and down.  The first is the big picture stuff or ‘exogenous macroeconomic events’ as we often refer to them.  This is why as an investor you need to have your big picture views because changes in interest rates, taxation, the views of central bankers and/or politicians, the rate of inflation or economic growth – among many other factors – do matter.

The second is even more exciting and that is all the stories, insights and data from the corporate up-and-downs that all individual companies face.  For the Dynamic Opportunities Fund this is the real catnip.

If you ever watch financial TV – or even read much of the immediate stockbroker views that clog up email inboxes during earnings season – you will see an obsession with ‘beats’ and ‘misses’ versus some nominal ‘market expectation’.  A quarterly earnings update which shows profits a cent above or below these hopes is immediately dubbed ‘a beat’ or ‘a miss’ and you can imagine what the gut feel of trigger happy stock market players are in terms of a share price impacts.

A bit of experience provides insight.  It is rare that a quarterly update from a company can be boiled down to such a simple, almost instantaneous thumbs up or thumbs down.  And at the crux of our strategy is seek out when such immediate thoughts and reactions are wrong based on going a few stages further in our research such as listening to conference calls with management, leafing through presentation documents and drawing on what we have heard or seen before. Having seen over eighty of these earnings seasons really does help.

I often refer to all this as the ‘earnings season dance’ – and as the ever-wise Alan Watts quote above noted the real key is to plunge in.  Most of the early action is States-side with later on this week thoughts and updates from the world’s largest asset manager Blackrock, huge American-listed banks including Citigroup, JP Morgan and Bank of America plus that supplier of takeover food for the masses Domino’s Pizza.  We do not have positions in any of these names currently but who knows what later this week will bring.

Such is the beauty of the earnings season dance.  We are tapping our feet in anticipation.