If you've been glued to the business media, you'll be under no illusions that we're well and truly in the middle of a deluge of company reports. And we're incredibly busy parsing the results here at Motley Fool Share Advisor.
The good news is that earnings season has been kind to our companies here at Motley Fool Share Advisor!
Or perhaps, slightly less modestly, we've been pleased to see share prices moving higher in most cases — a justification of the value we've seen in these companies.
Beware the analyst jargon
Apparently Wednesday was one of the busiest days, if not the busiest, with 10% of the companies listed on the ASX 200 reporting their earnings to the market.
Like all industries, professional investment analysts have their own jargon. This time of year is known universally as 'earnings season'.
As an aside, I — Scott here — hope you won't see too much unnecessary jargon here at The Motley Fool. We try to eschew as much of it as we can, using only those words/acronyms that have specific meanings and so help ensure you know exactly what we're talking about.
For example, EBIT, EBITDA, PBT and NPAT are all different ways to report a company's profit, so using the acronyms — when we do — is to make sure you can tell just what earnings we're referring to.
But if we don't have to use the jargon, we won't — we'd rather tell you straight, using plain English. Feel free to let us know if/when we use too much analystese!
So, we're in the middle of earnings season. And without wanting to jinx ourselves it's been a pretty positive start, in both results and share price terms. We don't care too much about the latter in the short term, of course, but we'll take it!
Make way for expectations
Share price movements of various companies reporting this week have been illuminative.
When The Reject Shop (ASX:TRS) reported earlier this week, the results were promising. Same-store sales were still negative, but overall sales were up, and the company is working hard to get the basics right. It was a passable result on the road to recovery, overall, a pleasing result.
And the market was certainly pleased.
The Reject Shop's share price jumped 15% on Wednesday, after the results were released, and up another 11% yesterday. At the time of writing (around lunchtime today), the shares were up yet another 3%.
That's a total gain of 31.5% in just over two trading days. Is the business all of a sudden 31% more valuable than on Tuesday? Well, no.
So why did the shares rise? One word: Expectations.
The Reject Shop's result was simply 'less bad' than some in the market had expected. Or feared. And the company's outlook was similarly better than investors had hoped and feared.
And arguably, those factors mean that there's now less downside risk to the investment thesis.
If you'd seen those results without knowing the share price, you'd never have predicted that shareholders' returns would improve strongly this week. But they did.
And it's a story repeated across the market.
Super Retail Group's (ASX: SUL) results were reasonable, but the market was excited. Crown's (ASX:CWN) profits were down 47% when the company reported earnings yesterday.
Some big wins by punters hurt that number, and the adjusted NPAT number was up 2.1%. Hardly a number to write home about.
And the shares? Up almost 10%. Again, a case of investors being surprised that things weren't worse. Coca-Cola Amatil (ASX:CCL) was another case in point, this week.
And it's not just moderate results that see investors get excited.
A company that we originally recommended in April 2012 and suggested our members hold ever since, Sirtex Medical (ASX:SRX) continues to deliver impressive growth — and investors pushed shares up 12% on Tuesday, giving us a gain of over 400% since the recommendation.
A nice reward for patience for our members. Why not join them?
So what are Foolish investors to make of all this?
Of emotions and value
The stock market measures emotions in the short term, and value in the long term. Pessimistic investors were impressed this week. In other circumstances, optimistic investors will be disappointed. Shares will rise and shares will fall.
But over time, share prices will reflect the value of the business itself. That's why we're long term investors.
I saw an article in the Sydney Morning Herald this week, brought to my attention by an eagle-eyed Fool.
In part, the author didn't want to be 'bored' by some advice, including (among others — some good and some bad), 'Buy and hold', 'Invest for the long term', 'Diversification', 'Invest in businesses' and 'You can't time the market'.
The author's last three pieces of advice he suggested were 'boring' were:
— If you aren't willing to own a stock for 10 years, don't think about owning it for 10 minutes.
— Our favourite holding period is forever.
— In the short term the market is a popularity contest. In the long term the market is a weighing machine.
He's entitled to his view, of course. But if those last three seem somewhat familiar, you can find them on the internet under 'B' for Buffett.
And Warren Buffett has $72 billion reasons to suggest he might be right.
Here's your chance to learn from the master…
Beautiful, boring profits
As I said to the team here, whenever your starting premise is 'Warren Buffett is wrong because…', you're on a hiding to nothing. No, Warren Buffett isn't always right, but your chances of being right when he's wrong are pretty bloody small.
So, if Foolish investing means being bored from time to time, bring it on. I won't begrudge those Fools who enjoyed this week's share price gains, of course — investing has its rewards — but these aren't short-term results from short-term investments.
They're the results of careful, Foolish investing, and the game is far from over.
So, while earnings season continues apace, here's to more boredom… and more market-beating long-term Foolish returns.
