‘If you know the enemy and know yourself you need not fear the results of a hundred battles’ – Sun Tzu
No matter how much I like researching current investments, looking for new ideas, pondering portfolio strategy and making Fund decisions, there comes a point in every quarterly earnings season where even I can feel a little overwhelmed. With ‘peak global quarterly earnings season’ a couple of weeks ago it feels an appropriate time to discuss again what we look when corporate results land.
Before we even look at any numbers, the first filter is to focus first on what we already own in the Fund. So putting together an earnings calendar for the positions we already hold is critical so when results hit it is not a surprise and, second, you can do some pre-preparation.
There is a reason why I am a great advocate of writing notes down about investments. In addition to it being good compliance and regulatory practice, such notes provide a valuable ongoing source of insight into whether you should continue holding onto an investment or not. The original rationale for an investment and interesting data/insights that have been accrued along the analytical journey provide a wonderful aide memoire in the days before an earnings release. Historically what were the key drivers, the biggest positive or negatives points, the big picture thematic rationale, the anomaly that analytically you hoped would disappear? Reminding yourself of all of these questions and observations makes the actual appraisal of corporate results easier.
When the results hit the key is to be focused on primary information i.e. that which is released by the specific company directly. My own favourites include the actual earnings release, the presentation document and the webcasted conference call. Clearly these three information sources are overlapping but all have their own specific insights such as specific, detailed numbers (earnings release), visual-based insights (presentation document) and the question-and-answer session on the conference call. By the time a share starts trading as the stock market day starts (most results are issued pre or post trading hours) I would have hoped to have fully appraised a couple of these information sources (often the webcast is the last to occur) and started to formulate my new, updated views.
I always think that the key to looking at an investment after significant newsflow is to appraise whether today – at the current share price – would you still buy the share. In our case using the insights we have gained (both quantitative and qualitative) we ask the simple question whether – in line with our stated investment strategy – we still perceive an investment anomaly or not? And hence should we buy more or sell some (or maybe do nothing).
From this point individual share decisions can be made. And once we have made decisions on the shares we already own we look at the shares we previously flagged as being of interest at the right moment based on our historical observations and experience. And if, on a particular day, this group is exhausted too then sometimes we undertake one of the more interesting routines in investment appraisal: taking a look at something we have not really reviewed before. It is always amazing what a focus on primary information has the potential to tell you.
And this is what makes results season exhausting but very, very insightful.