And away we go for another week.
I must admit something. I’m a market tragic.
Most people want their weekend to keep going. Not me. This stuff is more fun!
We’re also going through an important period at the moment — earnings results!
Now is the time most companies come out with their full-year numbers and any guidance for the future.
These are important pegs in the ground for you and I looking for trades.
I’ll show you what I mean below…
Reality versus expectations
What I look for around this time is not the numbers so much but the market reaction.
This might sound a bit odd.
But Telstra Corp Ltd [ASX:TLS] gives us a good example of this dynamic.
Go back a month or so.
There was an idea floating about that Telstra was ‘building a base’ before being in the sweet spot to start moving up as the 5G rollout really starts to get going.
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I had some sympathy with that idea. But Telstra is all a bit too slow moving and boring for me to bother with it.
It seemed a reasonable proposition but without the urgency and conviction I need to see before pulling the trigger on the trade.
That brings us to now. What do we see?
Take a look at this recent chart of Telstra…
Telstra released its latest results on 13 August.
Clearly you can see that the stock has since been dumped. We don’t really need to get into the weeds of it all.
All we need to know is that Telstra disappointed relative to the expectations carried into that earnings announcement.
That’s the booby trap the market can lay for you if you haven’t done enough homework…or simply make a wrong call (and we all make those!).
Let’s not dwell on the negative. The main thing to watch for now is stocks that hold steady or rise after their recent result announcements.
That gives you a stake in the ground. Now, the market is dynamic and can change but, in general, you’re on fairly sturdy ground after the market has digested the latest figures and passed judgement.
Then you need to dig around for what might be coming up and can rerate the stock higher.
Let me bring you back Telstra for a moment. I saw a fund manager make this comment about the stock recently…
‘I think, if you were parking cash, it’s really defensive. It’s really boring. It’s fuddy-duddy tech in cardi. But it’s…If you want to go defensive, maybe Telstra is a place to be, especially below three bucks. They’ve just gone ex-dividend though. So, the kind of the reasons to hold it 8 cents less than they were, couple of days ago.’
He may be right on some level. But I do not believe in ‘parking’ cash in a stock to be ‘defensive’.
You park cash where it belongs…in your cash account!
Do you really want to expose your precious capital to all the risks of a stock and the market to a stock he describes as ‘fuddy-duddy tech in cardi’?
I cannot think of anything more absurd. Don’t get me wrong. There may be an investment case for Telstra at this knockdown price…
Leave the unimaginative behind
But I do want to see a whole lot more evidence and conviction than the above.
No wonder people get fed up with the fund management industry. But you can see the problem they face.
The bigger stocks in Australia don’t have a huge growth profile. But they are the most liquid stocks that are easier for the big funds to buy and hold and sell.
That can lead them to uninspiring positions like Telstra.
The real action is down the smaller end of the market. That’s where the stocks with the excitement are trading.
And it’s one where you and I can enter and exit easily because we’re not trying to allocate hundreds of millions of dollars.
Of course, this end of the market comes with the added risk of falling just as quickly as it rises.
That said; a lot of fund managers are elephants in the China shop. You and I can be nimble.
I can tell you there are much more exciting companies out there. I have one I’m prepared to share with you too.
They just came out with some recent news (juicy sales!) that further validates the case here.
See why I don’t miss the weekend?!
Interested? All you need to do is sign up here to my free event I’m hosting this Thursday. Go do it now before you forget!
Editor, Profit Watch