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Tuesday, 25 July 2017
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Results - Blow up or go up

The results season is upon us again. I do rather laugh at the media coverage of the GUD results which came out this week. If they weren’t the first set of results off the rank they would be completely ignored. But such is the interest and anticipation in this rather scary month of the year.

In the last results season in February, 51 per cent of the two hundred and sixty odd major results saw their share prices move more than 3 per cent on the day of their results. 35 per cent moved more than 5 per cent and 11 per cent moved by 10 per cent. In other words you had a one in 10 chance of your stop moving 10 per cent on results. That is a very unpleasant prospect for a “leave me alone I just want 6 per cent” retiree investor.

This relatively new and accelerating results season volatility is a function of two things. The first is continuous disclosure requirements which mean a company can’t feed a message into the market anymore, instead it has to dump it. Some companies often haven’t said anything to the market for 6 months so results can easily surprise. Before rigorous continuous disclosure requirements companies would feed changing expectations into the market through select brokers and it would 'seep' in, not crash in. It was called “managing expectations” and this selective briefing method, far from being unfair, was seen as a company’s professional duty. No more.

The other volatility inducing factor is high-frequency trading. High frequency trading identifies and accelerates market activity, exaggerates it, and when it comes to the results season, if a stock was going to move 1 per cent on the news, high-frequency trading means it moves 2 per cent, or 5 per cent, or 10 per cent.

The vanilla algorithms run by high-frequency trading are designed to detect other people’s orders moving in and out of the screen, even before they are executed. They also respond to executed trades and in so doing detect short term price trends, in nanoseconds, and respond to them by placing their own orders in nanoseconds without any consideration for fundamentals.

The algorithms are also now electronically scanning the words of results announcements, no humans involved, and are picking up on adjectives and phrases like "profit warning" and "lowered guidance" or "raised guidance". And they instantaneously start placing orders in response.

That algorithm activity is then picked up by the vanilla activity matching algorithms and on the back of all that, last results season we saw WorleyParsons open down 21.8 per cent on the day of it’s results, only to bounce 11.5 per cent from the low before the end of the day.

Notably this all happens before any analysis is done by the brokers or the big institutional fund managers. And don't expect this situation to change, ASIC's study into HFT concluded that whilst it may be exaggerating short term price movements HFT was not disrupting the integrity of the market or materially raising the costs of execution enough to ban it. It is here to stay and the ASX have no interest in limiting it either because they are raking it in from HFT customers paying for high speed data feeds with terabytes of information being provided by the exchange at huge cost.

The bottom line is that Results and AGM seasons are becoming a bit like wearing a flouro vest on the battlefield during an artillery barrage. You never quite know when you’re going to get blown up. The results season is a time of risk and my message to you is “If in doubt, get out”. It is much better to miss a bounce on results and buy later knowing a stock has been de-risked for 3-6 months, than it is to step on a land mine. No company is safe, the current markets take no prisoners, caution rather than bravery will win on average in the next month. Far better you go to bed with Game of Thrones than you go to bed worrying about mid-cap.com's results the next day. And when the results are out, that’s the time to jump on board, when the stock is de-risked. Many uptrends will start the day of the results. And downtrends.

This is our results season calendar. The date of a company's results is a rather fluid affair. The bigger companies announce the dates well in advance and mostly produce results on the same day of the same week every year. Others are not so predictable to the point that sometimes results come out without notice at all. So this is a best guess and it will be tweaked each day/week. 

A red entry means interim results - black is final results. If you spot any glaring errors feel free to email us. This is E&OE...best endeavours - if it really matters to you check the company website and make your own enquiries. 

 

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