ASX Watch: Telstra’s Market Lesson from 10,000 Job Cuts

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Did you see the news?

Telstra Corporation Limited [ASX:TLS] revealed it’s going to slash 10,000 contractors from its payroll over the next two years.

That’s on top of the 8,000 jobs it plans to cull under its previously announced T22 strategy.

There’s a market lesson you can draw from this

Why you should care about this

You already know Telstra.

It’s Australia’s largest telecommunications and entertainment company.

Here’s the most important thing about Telstra: Nearly every single retail investor has held or will hold the company in their super portfolio.

Telstra disappointed investors for around 40 months between February 2015 and June 2018. 

Then Telstra launched its strategic T22 plan, which included changing its business structure — and cutting a lot of jobs.

What’s next for TLS?

Job losses are never pleasant.

That doesn’t mean the market won’t like the news, though.

Investors saw T22 as an opportunity to finally recover losses from a changing industry.

As a result, investors started to buy back into Telstra at the beginning of the year. That brings us to where we are today.

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As an investor, you must set aside your own personal beliefs and emotions when it comes to investing.

Because they can often be to your detriment.

You must always remember that for a share price to continue rising, the company must make a profit.

Therefore, it needs to make strategic decisions that will either increase its revenue or decrease its expenses.

When it comes to Telstra, the company has decided to focus on both.

And as a result, investors have been well rewarded over the last 12 months.

Source: Optuma

As you can see in this chart, Telstra is now in a clearly defined up trend.

That means investors are happy with the changes Telstra is making.

And as a result, they are willing to buy back into the company, driving up the share price.

We can use Telstra as a valuable lesson to understand how the market reacts to new developments.

Like it or not, bad news for company employees could be great news for you as an investor.

This article is not a recommendation to buy or sell TLS. It’s an update only. I hope you found it helpful.

Until next time,

Jim Rickards Signature

Jonathan Evans,
Analyst, Profit Watch

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