Reporting Season: Why You Need to be Prepared

This week on Talking Wealth, Janine shares how to prepare for reporting season so you can manage risk, protect your capital and avoid emotional decisions. One disappointing result doesn't automatically mean you should sell. Likewise, one great result doesn't automatically mean you should buy.

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  This podcast is brought to you by Wealth Within, a global leader in stock market education. For more information on our courses, head over to wealthwithin.com.au. Please note that the information in this podcast should not be considered personal financial advice. Enjoy.

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  Hello and welcome to Talking Wealth. I'm Janine Cox, Senior Analyst at Wealth Within. This week, I'm talking about reporting season and why you need to be prepared. I'm going to share a little bit about managing risk, protecting your capital and avoiding those emotional decisions. How many times have you gone through reporting season and wondered why a stock rose 20% and another stock fell by the same degree? And yet the one that fell by the 20% actually had a reasonable report, or so you thought. Some companies exceed expectations, some will see their share prices surge, and that could

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  cause you as an investor or trader to think that every stock in your portfolio is going to do the same, when the reality is completely different. And it can depend on the sector, the stocks that you're holding, the sector that they're in. It could depend on something that's occurred. Perhaps it's a mining company and they've had some issue that hasn't been forecast. These are all interesting scenarios that can occur. And this is why some people, traders particularly, may sit out the entire reporting season, or most of it, just because

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  of the volatility. They may use reporting season to make assessments about whether they're going to trade the stock. Reporting season could provide some interesting tests of levels that can identify whether the stock's likely to rise or fall. This can be a turning point. Now, the challenge is that no one can consistently predict which companies will surprise. And that's why successful investors don't rely on guesswork. They're very prepared.

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  So we're going to look at how to navigate reporting season with confidence by having a strategy, understanding your risk, and letting your charts guide your decisions rather than reacting emotionally to the headlines. If you're not looking at the charts, I think it's like being blindfolded. You cannot see what's going on. You can hear them talk about fundamentals, but at the end of the day, that doesn't mean anything. Even if it's positive news and the chart's falling, what does that really tell you in the end? So, reporting season creates some of the biggest opportunities and the biggest risks.

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  And some companies exceed their expectations, while others may underperform, and they will be punished quite swiftly. Investors who prepare before the announcements just generally make better decisions than those who are reacting afterwards. Now, when I say reacting afterwards, there's nothing wrong with making decisions after the announcements occur, but using proper analysis and risk management strategies to help reduce the chances of you actually losing your capital. That's the really big one. So, reporting season separates the disciplined investors from the emotional ones. Know when your companies report. One

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  of the simplest things that you can do is to know the date that every company that you're holding shares in is going to report. And if you're considering buying stock, then it's even more important, because I can tell you that the number of times that a stock will actually trigger an entry prior to reporting season is quite significant. I've also seen the reversed, where a stock gets sold down only to spring back higher. So that can be quite frustrating if that happens to you. One of the techniques that we teach

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  is to make sure that you know when that reporting date is. Put it on your chart. This could change the way that you think about managing your position, because you know exactly when volatility is likely to increase.

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  Now, when marking your charts, I'm talking about putting this on to the timeframe that you're trading. Let's say you're trading on a monthly chart, you would stick that on the monthly timeframe. If you're trading on a weekly chart, you're going to be putting that in the information on your weekly chart, so you can clearly see where it is. And you might even colour code the reporting season and the ex-dividend date, because that's another thing that's really important to include on your chart. It's a really handy piece of information to have. Now, the market doesn't care what you think or what you hope will happen. So that's why you've got to mark your support and your resistance on your

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  chart, know where the risks lie, where the price could slip. If it starts to fall and continues to fall with the announcement, a move below a particular level could be critical. But what do you do? Do you wait for the stock to close at the end of the week and just see whether some buying comes back into it? It depends on how significant that fall is as to whether you would wait. So if, for example, you had a line in the sand underneath the current price action, and it was 5% away and the stock slipped below that, it's not a big deal. If the stock fell 20% and went way below the stop that

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  you'd set, that's definitely a big deal. Sometimes you can actually do better to wait until the end of the day, but it depends on whether market conditions are pushing shares down at that time. If it's a more bearish sentiment around then, you will often see a stock continue to trade down for weeks, maybe months after that. And that's where the danger is in waiting sometimes. So you need to just make a decision, draw the line in the sand. And so that's all you're prepared to let the market have. Also, on the upside, have a think about where you may take some profits. If it does take off, identify where

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  the next buying opportunity could occur, depending on how it unfolds. So ultimately, all of these moves are short-term moves, but they add another piece of information that can tell you where the stock's likely to go. And there's nothing more satisfying than seeing a stock move up to the levels that you've marked, where you've projected it, the stock will go to, even if it gets there quicker than what you expected. So, putting the levels on your chart, that's a really important task that you need to make sure that you're doing to help you make the decisions based on your strategy and to be managing it properly, rather than your emotions. And this is quite simple to

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  do. It's not complicated to mark some important levels on any stock.

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  The other thing is that you want some rules before you actually need them, which makes sense when, you know, you don't want to be reacting emotionally. You want to make sure that you're being strategic about it. This is your money, after all. Are you going to let someone else take it? And the answer is no, you're going to do everything you can to protect it. And by that, I mean making sure that you have some knowledge to be able to manage your risk. So, one of the biggest questions that every investor should ask themselves is, how much of my profit am I prepared to give back? Most investors have never considered this question, because they're still considering what the upside could be.

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  If you've had a stock and it's been going up for some time, you're just wondering, how much more is it going to go up? So if you're thinking about the downside risk, that's really important, and that's a big tick. So you're doing the right thing if you are considering that at this point. But if you don't know how to manage that downside risk properly, that's the other side of it. So I encourage people, whenever they're filling out their trading plans, to look at the upside potential, but also the downside risk.

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  Now, most investors, they don't consider that. They simply watch profits disappear because they've never established an exit strategy. Look what happened to Cochlear. I'm sure there are investors there who are kicking themselves for not selling that off, because it could take years and it may never recover to those same levels.

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  So whether you're a long-term investor or an active trader, your decisions need to be based on predetermined rules. That means that you can then rule out the emotions taking hold and making probably bad decisions if it's a reaction rather than a plan. Now, why good news doesn't always lift share prices? This is a really interesting one, isn't it? Because, and it baffles a lot of people. I still get email questions about this sort of thing. Bigger profits should mean a higher share price, shouldn't it? A bigger dividend announcement, shouldn't that mean a higher share price? Well, not necessarily. We know that markets don't work that way.

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  The rhyme or reason, the logic that we think should be there isn't because we're not always looking at the full story. So is it that the good news was already priced in to the stock? Or investors actually expected a stronger result? Maybe consensus forecast estimated a higher payout? Or maybe they were looking for more profit? You know, it's splitting hairs sometimes. And you wonder sometimes who's throwing stones. Management lowered their future guidance. That's a big one because it often doesn't get headlines. Usually the thing that gets headlines is the profit announcement, the dividends.

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  What about the discussion that investors need to have or hear about the future guidance? That should be at the front.

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  So institutions use the announcement to lock in profits. So we see profit taking happen. Investors and traders may do the same. Short-term view, you'd be looking to get some money off the table. And sometimes if the stock's volatile, that's good for anyone to do, especially if it hits levels where you're expecting a significant turn to occur after that happens.

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  Now, when a company's valuation is stretched, then obviously the future earnings need to be able to balance that. And if that's not the case, that could be a big reason why the share price has been sold off. Remember, the market's always looking forward and it's trying to factor in six months in advance. It's not backward looking. So we need to be backward looking to learn and forward looking to learn what's actually occurred in the past because that can tell a huge amount and be worth a huge amount to you. If you can look in the past and see what's happened in reporting season, mark those dates on there and then just use,

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  in the case of Optima, which is the software that we use, you can use the training manager an inch forward as if it's in real time. I used to love that exercise that we would do at workshops where we'd do that live and we would inch it forward. And it was, it always was quite exciting to see where the share price ended up.

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  Markets will reward companies that exceed expectations. That's pretty simple, isn't it? And not just reporting good results. So that's something to just bear in mind whenever you're thinking about what's happening in reporting season to your favourite stocks. The charts often tell the story. Is it the truth? Well, that's the question that you have to ask. And sometimes you have to wait months to see how it pans out. But one lesson we continually reinforce is this. The chart often tells you everything you need to know. After reporting season, you'll hear commentators explaining why a stock rose or fell. But ask yourself, did knowing the reason protect your money?

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  And it's usually not, the reasons don't mean anything. The amount of time that people spend reading stuff and people's opinions versus actually learning, is putting that time into learning? Oh, I don't have time to study. But you have time to watch the news every night, scroll through reports because you're worried about your shares and you don't have time to protect them. It's really important now, more than ever in the last couple of decades that you do. You know, and we've talked about what's coming in other podcasts and on our show. Now, often is the case that the stock might just return to a support level

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  that's already been identified on the chart. And that's fantastic to see that because even if it fell swiftly, if it's respecting those levels, you know that it's more likely to be more predictable as it continues to unfold. So each piece of the puzzle that you see on the right-hand side of the chart as it forms and fills, it fills a gap in your understanding of what's going to occur next.

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  The news actually explains the move. Well, not always, but you'd like to think it does. And the chart actually prepares you for it. Now, both investors and traders have different goals. Investors obviously are looking long-term, wanting dividends, can ride through that volatility. It's a normal volatility. You can't ride through a cochlear volatility or a CSL volatility. You know, that's just something that doesn't have a parachute and should. Focus on long-term wealth creation, that's the plan. But timing is everything. So if you can imagine going back to before the GFC hit, in 2003,

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  and the market rose substantially, a big proportion of the gain occurred in that last phase. I've talked about that before. So, you know, long-term investors, if they bought at a low, let's just say after the 87 crash, but it never happens that way because most have buried their heads in the sand because of the fear factor. But let's just say, you know, you're above-average savvy investor and you bought in, let's say after it bounced, maybe 92, 93, and you got to ride that whole run, you know, that long-term you went through the 90s into early 2000s and up into 2007.

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  But then what did you do? Did you use something to manage risk like a trend line? Dale's book is a really good example. That book, How to Beat the Managed Funds by 20% is designed for an individual who can be nimble in the market and use a trend-following tool like a trend line. It's really not hard to do. It's just quick. You can apply it, but you do need to know how to apply them properly because there are rules to that. It's not just drawing a line up a chart. We make it look really easy on the show, but there's a lot more to it.

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  So active investors or active traders or investors prefer to protect profits and exit when the trend weakens and then re-enter later when it's safer to do so. That way they reduce the drawdowns.

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  The amount of times where the market has had a significant correction and investors sell near a bottom, what do you think that causes? That's what's causing a lot of the crashes that have happened over time. With that eventual sell-off, the pain gets too much and then that happens. So there's no right or wrong here. Long-term investors have their strategy, but to have no downside or risk protection, you can still be a long-term investor or trader and use the trends to help you. The trend is your friend, remember? But you can be staying in the stock or stocks for years and do it that way.

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  It's not a lot of work and there's quite a few people who are working full-time who choose to do those sorts of things. But there is a time not to be of that mindset and to be far more sensitive to the risk that exists in the market. And that's the times when the market could correct 50 or 60% and over a much shorter timeframe than it took to grow it to the highs before the crunch occurred.

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  So the next thing is, don't be the type of person that has a knee jerk reaction to things. Reporting season creates headlines. If you are reacting or you're really emotional about your shares, then it more likely means that you need to get some more knowledge.

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  That's really important. So start reading Dale's books. He's got two. You can get them on the website. The first one you get free. You just pay the postage and the shipping. So you may as well get both at the same time. They're really important books. Give them to your children. This is so important. They will be building super, the super of the future. I don't know about that, but they will be building their wealth via super. Maybe you're going to hand all yours to them and they won't need to worry about it too much. But things can change. Things happen over time that change the fortunes of families. So that's what you need to be aware of. So but having a knee jerk reaction creates

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  poor decisions in the end. So that's really important to think about. You know, how prepared are you? And it's about preparation. So perfect preparation makes perfect practice. Is that what it is? Or profits it could be at the end. Read the company announcement, review the management guidance, consider the dividend, look at the chart. That's the really important one. And above all, follow your rules.

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  Now, this is one thought for you. Reporting season does produce surprises. It's always the case. Smaller stocks could get punished more just simply because of the lack of liquidity that exists. So if you've got a mixed portfolio, it may be that you've designed it that way purposefully. But it also may be that you've just accumulated different stocks because they seemed good at the time. And this is really important time to seriously start thinking about cleaning up your portfolio. Get rid of some of the dead wood that's in there. But do that with the chart. You can always send an email into the show as well and ask

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  the question about, you know, what our long term view is on the stock. So we've had quite a few emails recently on stocks where the liquidity is quite low and people without with little knowledge are trying to buy those stocks or even may have bought them already and at the wrong time. So this is a really important thing to consider. With reporting season, that companies can come out with all sorts of reasons as to why brokers will tell you what their predictions are beforehand. And if it doesn't match up, they will give you plenty of reasons why, you know, that the company

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  didn't meet their expectations, so to speak. Not about their forecasts, it's about the company itself, you know, has done the wrong things. And that's what it seems like. But we know from history that a lot of the time, the forecasts that these analysts have or the economists have do not match up with the reality and what ends up occurring. You just watch at the end of reporting season and they give you the summary as to how the market went, whether the forecasts indicate that the market as a whole is poised for growth. That's probably a really important one to watch out for, is not just the individual

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  stocks, but the Australian market as a whole and what the expectations are there for growth going forward. Because if you think about it, our markets changed. You know that from looking at some of the movements on stocks and comparing that to how they were before. And because of that, and because it's, I guess, a more global scenario now that our market fundamentally changed when we went through the Royal Commission. And also add on top of that AI, and it's a recipe for disaster for people's super funds. I watched an interview where, I think it was ASIC came out and asked the question

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  of the head of the super fund industry, I think it was, or could have been a major fund manager, how are they going to actually protect investor funds?

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  This is really going to be a thing that comes up, I think, more in coming months. You'll see more information about that. But it may not make headlines and usually doesn't. Often, it could be little snippets somewhere and you've got to basically be aware of what you're looking for. But just keep an eye out for those things around reporting season. Now, some companies will soar and it could produce new trends. Some companies could reverse the trends. And this is also another interesting time because we've seen lots of stocks that are really following the angles of those trends or coming back to the angles

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  of those trends and bouncing off those angles. And if they do that and then reverse and come back down again after reporting season, that's a big warning sign for you to watch. Because once those levels get broken, stocks can continue to make new lows and go into more medium to longer term declines. And we've seen that with healthcare stocks did that.

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  There's no guarantee that the healthcare stocks are going to run and make new all time highs anytime soon. We could see a nice rebound and we have been seeing a rebound of them, but they could just as easily come back to test and try lows. And that's when, that's the really important time. Because if those levels hold and the stocks take off, then you can have some much more reliable short to medium term returns coming in. But if those levels get broken, then we all know what that means. Well, you will now after having followers for quite some time now.

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  The companies that disappoint, especially the small ones, I really feel for because in this market, in this climate, they're basically the minnows. Our market was more protected. It was like the bay, if you like, in, you know, Port Phillip Bay, where it's fairly well sheltered, protected. But the Royal Commission opened us up, opened us up more internationally. And because we've got so much money sitting in superannuation, it's so tempting for those hedge funds. And I really don't understand why there's not

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  more being done to protect our interests and protect Australia's future retirement savings. But that's a whole different story and I may do a podcast on something like that around at some point. Now, successful investors don't try to predict every announcement. You might scan a whole heap of stuff. You might do use AI to come up with a summary to tell you what's more likely to happen. And it may be that analysts have, a number of analysts have predicted that the announcement, and then something else comes out. So it's, and you don't want to be investing your funds prior to that happening. That's gambling.

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  So you also prepare. So what does it mean if the share price rose? By how much could it rise? And then, you know, if it means that the trend that confirms that the trend is going to proceed, then it may just be, okay, let's wait for the pullback and then wait for the confirmation of the next rise. What some people try to do, and this is where FOMO comes in and the greed and fear factor comes in, is when the stock starts falling again, they're trying to pick it up and buy without any confirmation that's actually turned around and could be heading back up again. Which is not a smart decision to make. It's all about direction and confirming that

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  the stock is moving in the right direction. It's also about the stop loss that you set as well. And that pullback actually gives you a really good place for a stop loss. What if the stock starts to take off and you get a reason to buy, then you know what your risk is. And you know what your options are for exiting. So you've got your initial stop loss and then you've got a level on the chart that once it goes through that in your analysis then would confirm the downside or the worst case scenario could be unfolding.

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  So know when the companies are reporting, keep it in your software, have it marked up. And in Optima, you can set layers and then just hide them so that it's not in your face all the time. And then just from time to time, open up a few layers when you're doing your review of your stock. Could be that you do a review each month. Depends on the timeframe for your trading and how often you think it's a good idea to do that. But know, know your exit strategy. Have it documented so that you know exactly how you're going to get out of the stock. And it may be that the low hasn't set up yet. So you haven't marked it on the chart yet. But you would have an initial stop loss. Sometimes

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  stocks can completely fall out of bed in reporting season and take even more significant a hit than what I mentioned previously. So you've got to be prepared for anything essentially. That's why some people, they decide to cash in ahead of some reporting seasons, depending on whether the stocks triggered their rules. Could be the key determinant, but it could also be if you're trading shorter term, that you're just taking profits and using a shorter term timeframe to manage those exits. Now, we don't say that you have to trade on a monthly chart or a weekly chart or a

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  daily chart. It's about you working out what works best. What's the best strategy that's going to give you more consistency? Now, because reporting season isn't about predicting every surprise, this is where it's really important for your emotions to have that understanding that it could go either way. So never be fixed or have a fixed view about what's likely to happen. Oh, I've read this report and it's going to be fine and the opposite occurs. So just think about that. It's about protecting your capital. Put yourself first and put yourself in the best possible position to take advantage of the opportunities that follow.

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  Now, you're not going to be able to do that just by thinking, oh, well, that stock's falling 20%. It's 20% cheaper now. Maybe I should pick that one up. There were some good reports about that before reporting season. It is a good company and they do have good products and they've launched into overseas. And I think they got some advantage with Trump tariffs. None of that is going to matter if the stock price is falling.

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  Because there can be plenty of scenarios that I could show you where those stock prices just got a hell of a lot cheaper after that and kept falling regardless of what the commentary said or what research you've found. So that's a big lesson. So I think it's more about the ego. If you get too fixed in thinking that a stock is going to rise and then you get the evidence that it's going to fall and still think that it's going to rise. You know, that's just, that's quite, that's crazy. So you just watch the signs. Watch your own emotions is another big one. And above all, there'll be plenty of opportunities still

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  to come. Each reporting season shows that we could see reporting seasons where certain sectors actually become the best opportunity to be in and others not so much. So also keep an eye on your sector charts. I'm Janine Cox, Senior Analyst at Wealth Within. Bye for now.