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Heisenberg,
If you want to go the whole hog on a Mauboussin themed weekend...
Patrick O'Shaughnessy (James's son) interviewed him here last week;
http://investorfieldguide.com/mauboussin/
Ninety minutes long, wide ranging and discursive, and worth a listen I think.
Hi Heisenberg,
Interesting article and plenty to digest. Many thanks for posting.
Of particular interest (to me at least) are the "Man Overboard" and "Celebrating the Summit" checklists as a means for providing guidance on how best to react to a substantial up or down movement in a stock price driven by either an earnings or non earnings event.
Given the US data set on which the analysis is based, I question how applicable it will be to a UK investor, but nevertheless a straightforward, mechanistic flow process for being rational in a stressful situation. Also, it appears to tie in well with the M V and Q metrics provided here on Stockopedia. I plan to try a few back tests over the weekend to see whether the advice would have been appropriate for a few of the recent sharp price movements.
Thanks again.
Gus.
As per the previous post, I've run a few sample back tests on a few companies whose share prices have moved sharply recently as a result of either an Earnings Release (EV) or non-earnings release (NER) as per the article. Of the five companies, four saw sharp share price falls and one a marked share price rise. The M, V and Q rankings are taken from the immediately preceding historic Stockopedia report prior to the news release. The buy/sell recommendation is as per the "Man Overboard" and "Celebrating the Summit" flow charts in the article.
My initial reaction is that the "buy" recommendation on Cenkos Securities (LON:CNKS) and Bonmarche Holdings (LON:BON) (primarily on the basis of low M and high V scores at the time of the news release) is a little counter intuitive. I'll make a follow up post in about 3 months' time to see how the then share price compares to the current price (bearing in mind that the the buy/sell is a relative indicator, such that if e.g. the market crashes in the meantime the buy/sell recommendation should be assessed against the stocks RSI).
Gus.
Hi Herbie.
Yes, the shares you mention have moved a fair bit since the "event" - both in the direction predicted. At a very simplistic level, a partial validation of their hypothesis.
If you look at the definition of an Earnings Event on page 97 this seems to make the distinction between a full earnings announcement (which I take to mean full annual or semi annual results) and "something else" for which they give the examples of a profit warning or the loss of senior management.
In the case of Crawshaw (LON:CRAW) the big share price movement came around 13/9 when they gave a pre earnings statement warning that LFL sales would be sharply down. This was followed up by the results last week which confirmed this (and saw a further price drop). Likewise, with Avesco (LON:AVS) it was an upwards profit warning at the start of September ("materially ahead of expectations") that kicked off the recent sharp rise (further enhanced by Friday's announcement of the sale of Presteigne to management).
I agree the distinction between ER and NER is a bit arbitrary. It doesn't really make too much difference to the outcomes - more the extent rather than the direction of the share price travel.
Best,
Gus.
Hi,
I'm looking at the Man Overboard scenario and I'm trying to make sense of the first step in determining if a scenario is an Earnings Event or a Non-Earnings Event. Here is the text from the manual ...
The first refinement is to segregate earnings and non-earnings announcements. Earnings releases constitute about one-quarter of our sample. Non-earnings announcements include releases of information that are scheduled, such as same-store sales updates, as well as unanticipated announcements, including a change in management or an earnings warning
Note the last bit ... "or an earnings warning" and I guess that could mean an unscheduled notification of an earnings improvement.
To me this seems to suggest that they are differentiating on scheduled and unscheduled earnings updates. For example, if a company issues a trading update and mentions earnings then from the text above it seems that this is classified as an unanticipated announcement and would be classified as a non-earnings announcement.
Phil
Looking at the case study for Harman in the 'Celebrating the Summit' scenario they do classify the unscheduled market update that included earnings data as a non-earnings event. So it appears that perhaps the events should be Scheduled Earnings Event and (Non-Scheduled Earnings Event or Any other Event)