While reporting season always provides some surprises and disappointments, investors should avoid the mistake of letting the surrounding noise affect their long term strategy, says Michael Hutton, head of wealth management at HLB Mann Judd Sydney.
“It can be tempting for investors influenced by company reports to tweak their portfolios at this time of the year, but it is important that they ignore the short term impact and maintain their long term strategy.
“There have been some ‘doom and gloom’ headlines lately, but investors shouldn’t take them at face value, and should be more influenced by whether the company will continue to provide the returns that they found attractive in the first place.
“In many cases companies that generate some negative news will still deliver good results to investors, and it is a costly mistake to panic and sell out on the basis of some bad headlines.
“For instance CBA, for very good reasons, is undergoing some tough scrutiny at the moment, but its profit result continues to be good and the dividend yield is still strong, so investors seeking yield should consider this before selling.”
Mr Hutton says that an equity investor who sells on the back of bad news is a bit like a property investor deciding to sell their investment because there is a problem in the plumbing.
“Property investors don’t look at the rise and fall of values day-by-day and nor should long term equity investors.
“In HLB Mann Judd’s view, the Australian equity market overall continues to offer some good value to investors and now isn’t the time to make knee-jerk decisions or react to short term news.
“Of course investors need to keep informed about the long term prospects of the companies they invest in and tidy up their portfolios but, for most, their long-term investment strategy shouldn’t really have changed much in the past few years.
“It may sound boring but the reality is that investors who have a sound long term strategy in place, should simply stick to their guns.
“If they have a well-diversified portfolio in place, probably the best investment decision they can make is to leave it alone.
“While it’s essential to review investment strategies regularly, making changes on the back of the hype of a reporting season is not a good approach and usually an over-reaction as the company problems were possibly already factored in before the results were announced.
“If a bad company result does take the market by surprise, there is often a knee-jerk reaction by investors but the company share price tends to recover,” Mr Hutton said.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association.