Today has been one heck of a news day.
Craig Kelly resigns from the Liberal Party.
The Job Seeker boost still finishes, as scheduled, but the ‘old’ rate will be increased (so, a cut and an increase, which should make absolutely no-one happy!).
SEEK Limited (ASX: SEK) co-founder Andrew Bassat is stepping aside as CEO.
Oh, and at the time of writing, the Aussie dollar has gained 2% in just 24 hours to now be buying 79.3 US cents.
Not to mention the regular earnings season ‘firehose’ of ASX companies reporting. My rough count was about a dozen of note, and another dozen or so that also delivered numbers today.
And there’s more news, again, with Moody’s cutting Victoria’s credit rating… and on and on it goes.
Frankly, I’ve spent quite a bit of time looking at earnings this morning.
But, in keeping with my note about Domino’s the other day, I thought it was worth sharing a few reflections.
Given the amount of information, I need to make sure I’m using my time effectively. I’m trying to put the 80:20 principle into play.
So, you know what I’m looking for most, this earnings season?
Big picture stuff.
I’m looking for companies that have delivered remarkable numbers – good, or bad.
They can provide opportunities to buy and/or sell, depending on the market’s reaction.
I’m looking for evidence of a trend continuing or changing.
That can show you when something has started working, is still working, or might be breaking down.
I’m looking for ‘proof of concept’ from businesses that talk a good game but are yet to show us the money.
That can be things like continued revenue growth, and/or evidence of scale benefits accruing to the bottom line, even if a company is still losing money.
Now, I don’t want to give you the impression that it’s only about the big picture.
Debt matters. Margins matter. Competition (present or potential) matters. So does leadership and a dozen other things.
And, depending on your style of investing, they can matter more than almost anything else.
But one way of harnessing good returns is seeing something that others don’t (or won’t), or finding it before the whole market catches on.
Or – and this is deceptively simple, and remarkably common, but under-practiced – simply looking out far enough to see the long term potential.
And while you can’t simply extrapolate (there’s a reason Kodak isn’t known, today, for being the dominant photographic printmaker), it’s worth considering whether a business’ momentum might suggest long term success.
The medical field is a good example, here.
But their success, over the long term, owes relatively little to the minutiae of financial ratios calculated to two decimal places.
Again, I’m not saying they are irrelevant or worthless. Far from it.
But those companies have been successful, in the main, by having a head start. Being best at what they do. Having large and growing markets. And with business models that rewarded that growth, delivering gobs of profit for shareholders.
Now, that doesn’t mean those opportunities will go on forever. Of the three, there are real questions as to CSL’s growth opportunities and its response to competing technologies.
And none of these companies are conventionally cheap, today. There is a price at which you should be prepared to sell and walk away.
But their stories of investment success owe much to their ability to take advantage of the bigger picture.
So, today, I’m reminding myself not to miss the forest for the trees.
That might work for you, too.