Reporting season throws a lot of numbers, share price moves and questions into the mind of an individual investor.

These questions might relate to whether you should sell after an earnings season pop. Why the stock fell when you thought the result seemed alright. And for serial disappointments, why you ever bought the shares in the first place.

This article is an attempt to keep you focused on the right things when companies in your portfolio report this August.

Let’s start at the highest but most important level.

Keep your long-term strategy front of mind

A lot of the information that we encounter during reporting season is short-term in nature. It relates to either the immediate past or the relatively near future in the form of an outlook.

Not all of this information can be dismissed as noise - some of it could have important ramifications for the long-term. But one thing is for sure: short-term information is a lot more liable to causing kneejerk decisions that are regretted later.

As a result, I think it is a good idea to go into this time of year with a clearer than ever idea of your long-term strategy.

What is the approach that you are taking to investing and why? What edge are you trying to lean into? Which behaviours during earnings season would embody that edge, and which behaviours would potentially scupper it?

As an individual investor, I am trying to exploit my ability to prioritise long-term results over short-term ones in the absence of career risk. As a result, my main focus is on considering any new information that I receive through a long-term lens.

As for things I am trying to avoid, those are quite simple.

I want to avoid any panic buys or sells in reaction to earnings news. And I want to avoid letting movements in the share price dictate my actions or how I feel about a company or its shares.

Remember why you bought each share in the first place

Now let’s move on to individual investments. Why did you invest in this company’s shares in the first place?

If you take the approach that we recommend at Morningstar, it will be because the shares met criteria that you set in line with your goals and strategy.

You can read more about devising a suitable investing strategy in this guide by my colleague Mark LaMonica.

My investment criteria reflect the fact that I am investing to provide for my retirement 30-plus years from now. They also reflect the fact that I am trying to exploit an edge by thinking longer term (and holding for longer) than other investors.

I hope to use information from reporting season to guide my long-term view of the companies I own and how they fit with my criteria. I am less interested in specific numbers and whether they were an “earnings beat”.

My criteria for shares include a decent long-term outlook (in terms of industry demand and the company’s ability to compete favourably), a competitive moat that I understand, and a strong financial position.

Some of the questions I might try to answer after a company releases their results for the year include:

  • Does the long-term outlook still look fairly good at the industry and company level?
  • Is the company still in a strong financial position? How is that evolving over time? What decisions are management making on this front?
  • How is the moat holding up? Are the moat sources that informed my initial investment still evident?
  • If things aren’t great right now, are competitors also seeing this? Is the company at least positioning itself to win longer term?

I think questions like this can help you frame the blast of short-term information that is an earnings release in a longer-term way. And, more importantly, in a way that fits with your strategy. It should also help you avoid kneejerk trades of the kind we’ll cover now.

Resist selling out of disgust

We all hope that our company’s annual report is a case of good news continuing or getting better. But it can often be a case of bad news getting worse.

It certainly doesn’t feel great when a share you have bought performs poorly. But you shouldn’t just sell to get the losing share out of sight and out of mind.

Think of this way: if the company’s problems don’t look permanent and the shares still satisfy your criteria, the chances of this investment delivering your required return from here may have increased due to its lower starting valuation.

This is how I view my holding in Diageo (LON:DGE). In case you aren’t familiar, it is the alcoholic beverage group that owns Johnnie Walker, Guinness, and Smirnoff, among others.

The shares have been an absolute dog since I bought them in 2023 and added to that position in early 2024. It is my worst investment by far in terms of paper loss, one I am reminded of this every time I check my portfolio.

Imagine I didn’t already own Diageo, though. Given my investment criteria and the qualities of this company, would I be interested in buying it at the valuation it has traded at recently? I absolutely would be. So why would I sell my existing holding?

I bring this up because earnings reports – and the market’s short-term reaction to them – can often feel like the straw that broke the camel’s back. Before you rush into anything, though, take a step back and consider the big picture strategy.

Keep up to date this reporting season

August will see the vast majority of ASX listed companies report their latest results to shareholders.

For a long-term take on developments in the companies and industries our analysts cover, subscribe to our daily email for our latest reporting season articles.

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