Recent past, in my watch list,I did observe profit warnings for #IXI and #LOOP and never thought I would get one in my portfolio.. Bang ON overconfidence .... got a big one on friday courtesy #ncyt.

Even though I have read Profit warnings guide from @Ed ,@Paul and stock team couple of years ago, thought it is worth refreshing and put a self note to me and share with others.

Stocko research is based on 245 profit warnings in small cap segment between 2013 and 2016.

Below picture summarises the entire journey

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  • On an average, prices start falling by 6% in the 6 months before the warning.
  • Average price decline on the day of the profit warning was -19.2%.
  • Further decline followed for two to three months after the warning, possibly coinciding with further earnings news.
  • On average, no significant reversal in the price decline even after 12 months

Key takeaways from the research :

  1. We cannot escape profit warnings. Only thing one can do is to prepare a plan for them.
  2. Minimise profit warnings - own defensive sector, avoid cheapest shares by P/E or Yield, avoid under performing shares and shares with poor earnings forecast
  3. When a profit warning strikes - consider selling (or selling short) immediately.
  4. Only consider buying, or continuing to hold after a profit warning if the shares are of the highest quality - preferably a QualityRank greater than 75.
  5. Traders should only consider placing an intraday trade during a profit warning if the shares have fallen by more than 30%. But beware the risk!
  6. Investors should only consider buying after a profit warning when at least six months have passed, and preferably only during a bull market.

How did you guys handle the profit warnings in your portfolio? Did you follow a specific plan, pattern or still running with confidence ( or overconfidence)?

What am I doing with Novacyt Sa (LON:NCYT)?

  • I couldn't act on Friday due to constraints of getting approval and executing the trades as I work in financial services industry. This is always tricky if RNS comes mid-day.. By the time I got the approvals, it was too late and I decided to not to act in haste as I was not ready with a plan.. - contrary to the research.....
  • I am still confident(probably over) on Novacyt Sa (LON:NCYT) and hanging on to one point from research saying that recovery is possible for…

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