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Should you sell your shares if they report badly?

It’s finally reporting season and already there has been some negative reactions to some of the reports. For example, Credit Corp Group Limited (ASX: CCP) and Navitas Limited (ASX: NVT) have fallen by 5.83% and 8.02% respectively after reporting today.

However, both shares revealed very different results. The market is reacting to the expectations of what those two companies were going to report, not specifically the numbers themselves.

Was it Credit Corp’s fault for not delivering on expectations or the market’s fault for expecting too much?

Either way, it can be hard knowing what to do if you own shares and they go down on report day. Perhaps the market is right and it’s time to sell? Perhaps investors should just hold? Maybe the share price drop means it’s now a buying opportunity?

Unless investors are planning on never selling their shares, or holding for extremely long periods of time, I think it’s worth asking ‘what would I do at today’s price if I didn’t own this share?’.

Investors can become anchored to the buying price of their shares, but the market doesn’t care what price you paid – it all depends on the future of the business. If you think that your share has good prospects at today’s price then it could be worth buying more. If you think the business is still overvalued and doesn’t have a good future then it could be worth selling.

It also depends on your original investment thesis. I don’t mind if Ramsay Health Care Limited (ASX: RHC) has one bad report because I expect it to grow steadily over many years. That’s why ‘ignoring the noise’ can be such good advice, most investors are investing with much shorter timeframes.

Foolish takeaway

I hope reporting season is more positive than it has been so far and I hope your shares do well. I’m confident in all of the shares that I own for the long-term, so I’ll be looking for any bargains if they show up.

I expect that these hot stocks could report very well next month.

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Motley Fool contributor Tristan Harrison owns shares of Ramsay Health Care Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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