One of the most frequent questions I receive is : ‘I saw the annual report for XYZ Company and it looks bad should we sell”.
The answer is almost always no.
With any investment there can be surprises and unexpected changes.
But most of the time, we have done our research and the news is expected. The stocks we have invested can often rally following this published ‘bad’ report.
The key is of course not what the company reports, but what the market was expecting.
If the market was expecting a 40% fall in profit, and the company posts a 20% fall in profit, the result will cause the company to rise substantially.
By the same token if a company posts a 20% profit increase and the market expects a 40% increase, the price of the company will fall.
What does this mean when you are investing then? It means you need to understand what assumptions the current price is based on, and you need to challenge those assumptions to determine what is a fair price.
For more professional retirement planning advice, call 02 9634 6698 or book a free consultation online with our expert financial advisors at our office in Sydney's Norwest.
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