Newsletter: Published Tuesday, 13.10.18

  • Shares selling off - congratulations to Spaceship members.
  • Earnings season: what it means to miss expectations.

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The Nasdaq is down this month, and the S&P500 has also copped a beating.

Last week - we went through the reasons why investors are flooding out of shares and into ‘safer’ investments.

(The cost of debt is becoming a bit more expensive and no one knows what the deal is with the Trade War between the US and China).

This week - we just want to remind everybody that sometimes markets go up and sometimes markets go down.At the moment, they are going down.

And a tremendous shout-out to Spaceship investors who, by and large, haven’t been pulling money out of their Spaceship accounts!

That money isn’t rushing out is a signal to us that you guys aren’t panicking. This is fabulous.

“Be fearful when others are greedy and greedy when others are fearful.” - Warren Buffett.

When markets fall, you’re buying the same businesses you were buying before, they just cost less.

The companies in which Spaceship Voyager (and you) are invested in have not stopped their operations. People are still buying Google ads. People are still subscribing to Netflix.

Tesla even managed to turn a profit with its electric cars this quarter.

The US market is leading the way in this selloff and technology stocks are the first in line. Australian shares generally take their lead from the US market.

And we saw the local market selloff last week too.

We understand that remaining calm while watching the value of your investments head south is very difficult. The urge to pull your money out is strong.

The only thing we can say is, fight that urge. Remember, we are long-term investors.

Generally, it's not about timing the market, but time in the market.

Of course, you have to make decisions that are right for you - so get professional advice and read the product disclosure statement and additional information documents.

But remember, the companies in which Spaceship Voyager invests are still making, selling and profiting off their businesses, and there is no signal they will stop doing this.

We believe in investing regularly over time. It can help minimise the emotional ups and down of investing and take advantage of the volatility.

We understand it’s tough to watch your money move around. But we also know you’re a reasonable bunch who appreciate logic.

Stay calm and we’ll see you on the other side of this selloff.

Or, as our portfolio manager said, just Netflix and chill.

Enjoy your week,

ps. The header image is of No-Face (カオナシ) who features in the 2001 film Spirited Away.

Professional guessing (and earnings season).

Every quarter companies that trade on stock exchanges around the world are required to report how their financials are tracking.

Every quarter, investment analysts try to guess what those financials are going to be.

These are called “estimates” or “expectations”.

Sometimes companies report numbers that are better than what the analysts expected.

When that happens, investors sometimes cheer and say, “Great! They beat expectations!” and the share price might go up.

For example, Intel - which makes computer chips - reported last week that revenue (the amount of money coming into the business) had increased 19 per cent from the year before.

Analysts expected $US18.11 billion in revenue. And Intel reported $US19.2 billion in revenue.

Nice one Intel!

And the share price shot up.

Sometimes companies report numbers that are below expectations, and people are horrified and the share price might go down.

Like for example, Google’s parent company Alphabet reported that revenue was up 22 per cent in the third quarter.

Analysts expected $US27.33 in revenue. But Alphabet reported $US27.2 billion in revenue.

Boo Alphabet!

And shares plunged.

Of course, the thing here is that Alphabet’s revenue was still up 22 per cent. It was just up less than what analysts thought it might be.

So - how much value do an analyst's analysis and forecasting of an earnings report add?

Well, not none. There is value in seeing what nuances a person deeply immersed in a company finds in its financial results. And what they think the company should be achieving is not pointless either.

Arguably each quarterly earnings adds information that makes markets more efficient and investors more informed. And if you wanted to make a decision - kind of about anything, like buying a car, or a new camera or shares in a company - generally you might say, the more information the better. And if someone who thought about how much that thing should cost all the time as their full time job offered their opinion, you might take it on board.

But as investors, it’s important to remember that quarterly earnings are just that; short-term quarterly earnings. And that analyst estimates are just that, estimates.

And if you’d like to get an indication of how the business is going, think about whether you agree with how that business is growing and look at the direction of the actual numbers.

Are they going in the direction you want?

Try not to focus on whether the market is jumping around as it responds to analyst expectations.

Again, not that analysts aren’t helpful!

There’s just... you know... a time and a place for some perspective.

More examples from investments in your Spaceship Voyager Portfolio:

Amazon reported that revenue was up 29 per cent from last year.

Analysts expected $US57.1 billion. And Amazon reported revenue of $US56.6 billion.

As such, Amazon shares fell.

Boo Amazon.

Twitter reported revenue of $US758.1 million; a 29 per cent year-on-year increase.

It beat analyst estimates of $US702.57 million.

So shares in Twitter soared.

Hooray Twitter!

Now is a good time to point out that the Spaceship investment team is pretty pleased with all these results.

These are quarterly updates on businesses that are operating on a long-term time horizon. They are steadily growing.

The more information companies disclose publicly, and the more frequently they do it, the more the markets will be driven by reactions to that information.

But as long-term investors we are just interested in the general direction of the business.

Nice one Spaceship!

Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager invests for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s investments.

However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.

The Spaceship Universe Portfolio invests in Alphabet, Amazon, Intel, Netflix and Twitter.

The Spaceship Index Portfolio in Alphabet, Amazon, Intel and Netflix.