Despite mounting evidence that it's not the most effective way to invest, many investors still adopt a 'buy on good news, sell on bad news' mentality that disrupts the potential of a long-term buy and hold strategy.
It's something we've all been guilty of at one time or another – I've done it myself – but it's especially apparent in those businesses that have lumpy earnings.
Take a quick look at Integrated Research Limited's (ASX: IRI) price chart over the past year to see what I'm talking about.
When 1H profit guidance was released in January and indicated that profit would rise more than 64%, shares in Integrated jumped 15% to $1.20.
Seven months later when full year profit guidance is released (indicating that final profit will be down 8%), investors jump ship, sending the company's price back to its January levels.
In the full-year report released today, investors can see that revenue rose 9% with increases across all categories; Licensing, Maintenance and Consulting.
However revenue growth was largely matched by increased expenses in R&D, sales and marketing and general/admin expenses.
The real reason for the decrease in profit was a net shift of -$0.8 million in currency exchange gains, down from $0.591m to -$0.364m.
Investors will note that overall profit (down 8%) is down almost exactly $0.8m from the previous year's results, although management also points out that a lack of large licensing sale contracts in the second half is a major contributor to lack of growth.
If I was closely awaiting the opportunity to pick up some shares in Integrated Research, do you know what this state of affairs would say to me?
Buy!
This business has long-term potential and the flirtations of investors who buy good news and sell bad should be looked at (in this case) as an opportunity to pick up a few shares on the cheap.
Lumpy earnings don't necessarily suit every investor however, so we've come up with another buying opportunity for you – except this one's tucked away in our highly secret (just kidding!) Top Stock for 2014-2015 report.
It's a company I already own, and one that belongs in every portfolio by virtue of its unique way of drawing earnings, earnings that benefit in times of both low and high interest rates, boom-times and downturns.
It boasts a consistent track record of profit and dividend growth, and trades at a fair valuation to boot.
If you're interested, simply click on the link below and enter your email address – it takes less than 30 seconds – and we'll send it to you, completely FREE!
