Category: Stock Market

The S&P/ASX 200 Index (ASX: XJO) is having a day to forget on Monday. In afternoon trade, the benchmark index is down 1.9% to 6,967.1 points.

Four ASX shares that have managed to avoid the selloff and push higher are listed below. Here’s why they are rising:

A2 Milk Company Ltd (ASX: A2M)

The A2 Milk share price is up 9% to $5.36. Investors have been buying this infant formula company’s shares after its full year results impressed. Not only did A2 Milk deliver a net profit after tax ahead of expectations, it decided to return some of its huge cash pile to investors. A2 Milk intends to return NZ$150 million via an on-market share buyback.

Lovisa Holdings Ltd (ASX: LOV)

The Lovisa share price is up 5% to $19.61. This morning the fashion jewellery retailer released its full year results and revealed a 59.3% increase in revenue to $458.7 million and a 116.3% jump in net profit after tax to $59.9 million. Management also advised that price increases introduced during the third quarter to combat inflation delivered sales growth with minimal impact to volumes.

McMillan Shakespeare Limited (ASX: MMS)

The McMillan Shakespeare share price has jumped 14% to $14.60. This follows the release of the salary packaging company’s full year results for FY 2022. The company reported 9.2% increase in revenue to $594.3 million and a 16.5% increase in underlying profit to $83.8 million. This and its strong balance sheet have allowed an off market share buyback to be announced.

Tyro Payments Ltd (ASX: TYR)

The Tyro share price has risen 6% to $1.06 following the release of the payments company’s full year results. Tyro reported a 39% increase in revenue to $229.2 million but a loss after tax of $29.6 million. The company finished the period with a total of 109,248 terminals, which was up 4% year over year.

The post Why A2 Milk, Lovisa, McMillan Shakespeare, and Tyro are storming higher appeared first on The Motley Fool Australia.

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More reading

• Everything you need to know about the latest A2 Milk share buyback
• A2 Milk share price soars 8% as company regains money-making mojo
• McMillan Shakespeare share price revs 9% higher on bumper final dividend
• Tyro Payments shares surge as gross profit lifts 34% in FY22
• Lovisa share price lifts as full-year profit surges 116%

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tyro Payments. The Motley Fool Australia has recommended A2 Milk, Lovisa Holdings Ltd, and Tyro Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Woodside Energy Group Ltd (ASX: WDS) share price is in the red alongside the broader market on Monday as the company gears up to post its half-year earnings tomorrow.

No doubt all eyes will be on the S&P/ASX 200 Index (ASX: XJO) energy giant on Tuesday morning.

In the meantime, however, it’s trading in the red. The Woodside share price is currently $35.405, 1.52% lower than its previous close.

For context, the ASX 200 has slumped 1.92% so far today while the S&P/ASX 200 Energy Index (ASX: XEJ) has slipped 1.45%.

Let’s take a closer look at what’s going on with Woodside on Monday and what the market might expect from the company tomorrow.

Woodside share price slips ahead of half-year results

The Woodside share price is sinking despite oil prices having closed higher last week.

The Brent crude oil price rose 1.7% to US$100.99 a barrel on Friday, leaving it 4.4% higher than it finished the previous week. Meanwhile, the US Nymex crude oil price lifted 0.6% to US$93.06 a barrel, ending the week 2.5% higher.

But that’s not translating to gains in the energy sector. It’s being weighed down by shares in Worley Ltd (ASX: WOR) and Paladin Energy Ltd (ASX: PDN) – they’re falling 4.8% and 4.1% respectively right now.

But that might all turn around tomorrow as Woodside reports for the first time since it absorbed BHP Group Ltd (ASX: BHP)’s petroleum business.

Prior to the merger, Woodside expected to produce between 92 million barrels of oil equivalent (MMboe) and 98 MMboe over the whole of 2022. More recently, that was upped to between 145 MMboe and 153 MMboe.

On top of that, oil prices surged in the first half of 2022 following Russia’s invasion of Ukraine. That may have helped to bolster the ASX 200 giant’s bottom line.

Despite today’s downturn, the Woodside share price is still boasting huge gains. It has lifted 56% since the start of 2022. It’s also trading 77% higher than it was this time last year.

The post Woodside share price slumps ahead of tomorrow’s earnings update appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• Earnings preview: Here are 3 ASX 200 shares reporting next week
• 5 things to watch on the ASX 200 on Friday
• Why did the Woodside share price hit a 2-year high on Thursday?
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The BWX Ltd (ASX: BWX) share price won’t be going anywhere on Monday.

This comes as the company requested the ASX that its shares be suspended from quotation immediately.

Currently, the personal care products company shares are frozen at 63 cents apiece.

Why is the BWX share price suspended?

The company requested the BWX share price to be suspended as it requires additional time to prepare its full-year results.

Previously, BWX had been scheduled to release its audited FY 2022 results to the market tomorrow.

However, due to irregularities in its financial reports, the company has asked the ASX for the suspension to last until 30 September.

BWX stated that it “anticipates the suspension will cease on it lodging an Appendix 4E and audited accounts with ASX in relation to its FY22 full financial year.”

What does this mean?

Management provided some further insight in regards to why it needed more time to collate its FY 2022 results.

It said that “certain revenue recognition issues for FY21 and FY22 and the likely impairment of its intangible assets to a level significantly below their carrying value as previously foreshadowed to the market on 28 June 2022.”

This means that BWX could fall short of its previously stated full-year guidance for FY 2022.

Following its trading update and capital raise announcement in June, the company forecasted revenue to be approximately $206 million (before significant items).

FY22 forecast of earnings before interest, tax, depreciation and amortisation (EBITDA) (before significant items) was projected to be around $6 million to $10 million.

And on the bottom line, net profit after tax (NPAT) (before significant items) was forecasted to come at a loss of roughly $10 million to $14 million.

About the BWX share price

Since this time last year, BWX shares have headed on a downhill trend to hit an all-time low of 61 cents on 23 August.

Ultimately, this led the company’s shares to register a loss of 88% for the period.

Based on today’s price, BWX has a market capitalisation of around $125.99 million.

The post Why is the BWX share price on ice today? appeared first on The Motley Fool Australia.

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More reading

• Nitro Software share price plunges 7% amid $25 million loss
• How does the BHP dividend stack up against the latest Fortescue payment?
• Everything you need to know about the latest Northern Star dividend
• Here’s why the Bitcoin price just dipped back below US$20,000
• What makes ‘Dividend Aristocrats’ a great investment for you?

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BWX Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Nitro Software Ltd (ASX: NTO) share price has taken a hit today amid the company releasing its half-year results for the first half of FY2022.

Shares of the document solutions software as a service (SaaS) startup are currently trading for $1.12 each, down 7.05% on Friday’s closing price.

Let’s go over the highlights of the company’s results for the half year ending 30 June 2022.

What did Nitro Software report?

• Operating earnings before interest, taxes, depreciation, and amortisation (EBITDA) down 107% year over year (yoy) to a $US6.3 million ($AU9.18 million) loss
• Net loss up 101% yoy to US$17.3 million ($AU25.22 million)
• Annual recurring revenue (ARR) up 52% yoy to $US51.5 million ($AU75.09 million)
• $US35.2 million ($AU51.32 million) in cash holdings and no debt
• No dividend declared

Nitro reported higher operating expenses during the reporting period. Research and development (R&D) accounted for the largest increase, growing 58% yoy.

The company also recorded a significant depreciation and amortisation (D&A) line item. This figure jumped 265% yoy to $US3.3 million ($AU4.81 million), affecting Nitro’s net loss.

On the positive side, the company reported a strong compound annual growth rate (CAGR) for its ARR and subscription revenue. They grew 54% and 60% respectively from June 2020 to June 2022. Another win for the company was its high-quality earnings, with 67% of revenue coming from Fortune 500 companies.

What else happened?

Nitro Software has accelerated its transition to subscription revenue since FY2017 for its business sales channel. Subscription revenue increased to 90% in 1H2022, up from just 14% in FY2017.

The company also landed a couple of marquee clients in the first half of 2022, including a US insurer that gave the platform an additional 10,000 users. Another client in the Fortune 100 index purchased 9,000 Nitro PDF licenses in 2017.

What did management say?

Nitro Software co-founder and CEO Sam Chandler said:

Although the first half did not meet all our expectations for performance, it was still a period of growth in which ending ARR grew by 52% and scaled to over US$51 million after more than doubling in the two years to June 30. Subscription revenue also grew fast, increasing 55% year-on-year. But macroeconomic conditions have been challenging, and sales cycles lengthened towards the end of the period. As a result, we revised our plan for the second half including restructuring our Go-to-Market organisation for improved performance and efficiency, reducing costs by US$5 million, and accelerating the pathway to cash flow positive.

What’s next?

The e-signing global spend is set to grow at a CAGR of 9% over the next decade and 44% through to 2025. This will be buoyed by growth in signing for high-value transactions as consumers elevate their needs for a trusted solution, the company said.

Nitro Software intends to be cash flow positive by 2H2023. As for guidance, the company expects to make a US$10-$13 million ($AU14.57-18.94 million) loss for the remaining year, with ARR falling in the range of US$57-60 million ($AU83.05-87.43 million).

Nitro Software share price snapshot

The Nitro Software share price is down 54% year to date. Its losses are far greater than the broader market’s with the S&P/ASX 200 Index (ASX: XJO) down roughly 7% over the same period.

The company’s current market capitalisation is around $276 million.

The post Nitro Software share price plunges 7% amid $25 million loss appeared first on The Motley Fool Australia.

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More reading

• Here are 2 exciting ASX growth shares tipped as buys by analysts
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Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Nitro Software Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Fortescue Metals Group Limited (ASX: FMG) shares are suffering after the company’s latest dividend was slashed by 43% this morning, leaving many wondering how it stacks up against BHP Group Ltd (ASX: BHP)’s most recent payout.

The smaller of the two S&P/ASX 200 Index (ASX: XJO) iron ore giants has offered investors a $1.21 final dividend per share they hold. Meanwhile, BHP will pay a US$1.75 per share final dividend next month.

Obviously, the latter is offering a larger payout per share, but is it really superior to that of Fortescue? Keep reading as we compare the pair.

Is the BHP dividend better than that of Fortescue?

Fortescue revealed its $1.21 final dividend for financial year 2022 on Monday and, while the company’s share price is being weighed down by its results, its payout might actually compete with that of BHP.

Fortescue’s latest dividend brings its full-year offerings to $2.07. Considering the Fortescue share price at the time of writing – $18.98 – it’s trading with a dividend yield of 10.9%.

The offering also represents a payout ratio of 75% of net profit after tax (NPAT) and comes fully franked. That means it could bring additional benefits for some investors at tax time.

Meanwhile, the true value of BHP’s latest dividend in Australian Dollars will be revealed next week. However, US$1.75 represents $2.55 Aussie bucks at today’s exchange ratio – which would bring BHP’s full-year dividends to $4.63.

Considering that figure and the BHP share price right now – $42.08 – the materials giant could arguably boast a dividend yield of 11% – a fraction higher than that of Fortescue.

On top of that, its final dividend represents a 77% payout ratio and also comes fully franked.

Both companies offer a dividend reinvestment plan (DRP), allowing investors to receive dividends in the form of new shares.

All in all, both companies are offering a decent dividend at a strong yield. But that of BHP represents slightly better value right now.

Investors wanting to get on board for BHP’s upcoming final dividend better do so quickly. The stock will trade ex-dividend on Thursday, meaning Wednesday will be the last chance for new investors to secure the payout.

The post How does the BHP dividend stack up against the latest Fortescue payment? appeared first on The Motley Fool Australia.

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More reading

• Everything you need to know about the trimmed-down Fortescue dividend
• Fortescue share price backtracks as final dividend is slashed by 43%
• 5 things to watch on the ASX 200 on Monday
• 2 ASX 200 dividend shares to buy now according to analysts
• Earnings preview: Here are 3 ASX 200 shares reporting next week

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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It’s been a brutal day for ASX shares and the S&P/ASX 200 Index (ASX: XJO) so far this Monday. At the time of writing, the ASX 200 has lost a nasty 1.9% and is back to around 6,970 points. It’s a similar story for the Northern Star Resources Ltd (ASX: NST) share price.

Northern Star shares have not escaped the bad mood of the markets today. The gold miner is presently down by 2.1% at $7.42 a share, underperforming the broader market.

This move comes after the ASX gold share reported its full-year earnings for the 2022 financial year this morning.

As we covered at the time, this saw Northern Star report a 35% lift in revenues to $3.735 billion. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) also rose, by 31% to $1.517 billion. But underlying net profit after tax (NPAT) dropped 27% to $273 million.

The company also announced an on-market share buyback program worth up to $300 million.

Everything you need to know about Northern Star’s dividend

But let’s talk about Northern Star’s dividend announcement. The gold miner declared a final dividend of 11.5 cents per share, fully franked.

This is a 15% improvement on the interim dividend of 10 cents per share the gold miner paid out back in March. It’s also a big increase over FY2021’s final dividend of 9.5 cents per share.

It brings Northern Star’s total dividend payments for FY22 to 21.5 cents per share, again an improvement on the 19 cents per share of FY21.

NorthernStar shares will trade ex-dividend for this payment on 6 September, which means investors have until that date to buy Northern Star shares if they want to receive this dividend. It will then be paid out on 29 September.

Northern Star is running a dividend reinvestment plan (DRP), so investors also have the option of receiving additional shares instead of a cash payment if they so choose.

As it stands today, Northern Star shares have a dividend yield of 2.61%.

The post Everything you need to know about the latest Northern Star dividend appeared first on The Motley Fool Australia.

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More reading

• Northern Star share price backtracks despite revenue lifting 35% to $3.7b
• 5 things to watch on the ASX 200 on Monday
• Can the gold price outshine sticky inflation?
• 5 things to watch on the ASX 200 on Wednesday
• 5 things to watch on the ASX 200 on Monday

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Bitcoin (CRYPTO: BTC) price has fallen back below the psychologically important US$20,000 level.

The world’s original crypto is currently trading for US$19,773 (AU$28,775).

That sees Bitcoin down 2% over the past 24 hours, 8% since this time last week, and down a painful 59% year-to-date, according to data from CoinMarketCap.

And it’s not just the Bitcoin price in retreat.

Ethereum (CRYPTO: ETH), the world’s number two crypto by market cap, is trading for US$1,448, also down 2% today and 10% over the past week.

Why is the Bitcoin price dropping?

Bitcoin, and indeed the vast majority of top cryptos, have all lost significant ground since US Fed chair Jerome Powell addressed his fellow global central bankers at the Jackson Hole financial summit in Wyoming. Powell made his speech on Friday morning (Friday night Aussie time).

In the lead-up to the Fed chair’s speech, the Bitcoin price was trading for US$21,761.

Investors hoping to hear the world’s most influential central bank might be approaching the end of its tightening cycle were left wanting.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said. “The historical record cautions strongly against prematurely loosening policy.”

Powell said that “higher interest rates, slower growth, and softer labour market conditions will bring down inflation”, adding that “they will also bring some pain to households and businesses”.

Crypto investors watching the Bitcoin price dip back below US$20,000 will be feeling some of that pain today as risk assets have sold off across the board.

On Friday, the NASDAQ closed down 3.9%. And so far in 2022, cryptos have moved in line with growth shares.

Could this be a buying opportunity?

However, not everyone is bearish following the latest retrace in the Bitcoin price.

Mark Newton, technical strategist at Fundstrat, believes the token’s recent trading pattern presents a buying opportunity.

According to Newton (courtesy of Bloomberg):

Friday’s break looks important and negative in the short run but should line up with buying opportunities into early September as cycles remain bullish and project higher prices into November 2022.

The post Here’s why the Bitcoin price just dipped back below US$20,000 appeared first on The Motley Fool Australia.

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More reading

• Everything you need to know about the latest Northern Star dividend
• What makes ‘Dividend Aristocrats’ a great investment for you?
• Why did the Galileo Mining share price just leap 30%?
• Everything you need to know about the trimmed-down Fortescue dividend
• Everything you need to know about the latest A2 Milk share buyback

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin and Ethereum. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

From time to time, you might read about the S&P 500 Dividend Aristocrats. These companies are S&P 500 index members that have paid and raised a dividend for at least 25 consecutive years.

Those looking for total returns might scoff at dividend stocks as mature companies that have left their best growth days in the rearview mirror. But consider that the Dividend Aristocrats have collectively outperformed the S&P 500 index by an average of 0.74% annually, which creates a significant margin over the course of decades.

What’s the secret to their success and what can that mean for your portfolio? Here is why every investor should at least consider adding some Aristocrats to their long-term investment strategy.

The anatomy of a dividend

Most investors know what a dividend is: Companies that have available cash will sometimes share it with shareholders. But many investors skip over the anatomy of a dividend and how it impacts a business.

For example, a dividend is a cash expense. Accounting rules can twist a lot of the financial jargon and metrics you see in a company’s financials. A company like Netflix can show a bottom-line profit but generate little free cash flow simultaneously because accounting rules can affect how companies report their earnings.

NFLX net income (TTM). Data by YCharts. TTM = trailing 12 months.

A company can only pay a dividend in cash; it can borrow money to pay a dividend, but that’s a losing game that never lasts long. A business that can not only pay you part of its cash profits but also keep increasing its annual payout can only do so if it’s growing over the long term. You can’t fake it.

Successful investing can be as simple as buying quality businesses and letting them do their magic over time. A Dividend Aristocrat often fits that bill simply because of what is entailed with paying and raising a cash expense like a dividend.

An additional level of compounding

A steadily growing business will generate capital gains as earnings grow over time, but what you can do with dividends propels Aristocrats as investments. Dividends are essential to investment returns; they made up 31% of total returns from the S&P 500 from 1926 to 2021.

You can also reinvest dividends, taking the cash and buying more shares. Those new shares don’t cost you any out-of-pocket money beyond your initial investment, and will pay dividends of their own, creating a compounding effect.

PG data by YCharts.

This can have a considerable impact on your total investment returns over time. Consider a stock like Procter & Gamble, a Dividend King with 66 consecutive years of dividend increases. Investors have earned 4,720% in lifetime returns from capital appreciation since the early 1970s. That’s great, but that would have nearly tripled to 12,120% by reinvesting the dividends to take advantage of compounding!

You don’t need home runs to win the game

Ultimately, you don’t need to find the next Amazon to have a lucrative investment journey. Derek Jeter is one of baseball’s greatest players because he could consistently hit the ball year in and year out, even if it didn’t often go out of the park.

The same applies to investing. A Dividend Aristocrat probably won’t make you rich overnight, but you can become wealthy by buying and holding Aristocrats as part of a diversified portfolio with a long-term outlook.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post What makes ‘Dividend Aristocrats’ a great investment for you? appeared first on The Motley Fool Australia.

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• Warren Buffett has 10% of Berkshire Hathaway’s portfolio in this recession-resistant sector

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon and Netflix. The Motley Fool Australia has recommended Amazon and Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The S&P/ASX 200 Index (ASX: XJO) is having a dreadful start to the trading week so far this Monday. As it currently stands, the ASX 200 has lost a painful 2.07% and is back around 6,950 points. But the A2 Milk Company Ltd (ASX: A2M) share price is a conspicuous outlier.

A2 Milk shares are comprehensively defying the gloom on the markets today. The ASX 200 dairy share is currently up a healthy 9.06% at $5.355 a share. This move comes after A2 Milk reported its FY22 full-year earnings to the markets this morning.

As we went through at the time, these earnings saw A2 Milk report a pleasing 19.8% rise in revenues to NZ$1.45 billion. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose an even better 59% to NZ$196.2 million. Meanwhile, net profit after tax (NPAT) was up 42.3% to NZ$114.7 million.

But perhaps the biggest piece of news this morning was the announcement that A2 Milk would initiate a NZ$150 million ($133.65 million) on-market share buyback program.

Are share buybacks boosting the A2 Milk share price today?

A2 Milk’s managing director and CEO David Bortolussi said that “our on-market buyback of up to NZ$150 million demonstrates effective capital management and the improved confidence we have in our strategy, execution and outlook”.

This might be part of what is delighting investors today with this report.

Share buybacks, like dividends, are a form of capital return for shareholders. A buyback involves the company buying its own shares on the open market and ‘retiring’ them. This has the effect of reducing the supply of the shares. This, under the laws of supply and demand, should result in share price appreciation.

Further, buybacks reduce the overall share count for a company. As such, they are usually accretive to earnings per share (EPS) growth, seeing as there are fewer shares to divide a company’s earnings between.

Many investors (including the legendary Warren Buffett) prefer buybacks to dividends, seeing as the positive effects of share buybacks can be enjoyed without being initially taxed, unlike a dividend. So it’s perhaps no surprise that the A2 Milk share price is performing so well today.

At the current A2 Milk share price, this ASX 200 dairy share has a market capitalisation of $3.97 billion.

 

The post Everything you need to know about the latest A2 Milk share buyback appeared first on The Motley Fool Australia.

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More reading

• A2 Milk share price soars 8% as company regains money-making mojo
• A2 Milk share price on watch amid earnings beat and NZ$150m buyback
• 5 things to watch on the ASX 200 on Monday
• Earnings preview: Here are 3 ASX 200 shares reporting next week
• A2 Milk share price lags ASX 200 ahead of Monday’s earnings result

Motley Fool contributor Sebastian Bowen has positions in A2 Milk. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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I have a question for you:

What do you think the economy will be like on June 30, 44 weeks from now?

And with what level of confidence?

Now, let’s make sure you’ve considered all of the inputs into that decision: interest rates, inflation, local and global economic growth, currency, wages, government spending, the savings rate, house prices, and more.

Still confident?

Okay, let’s overlay the X-factors.

You know, like, oh… Maybe a pandemic? Geopolitical tensions (or worse). Terrorism. Drought. Floods. Fires.

And they’re just the ones I can think of.

How confident are you in your prediction, now?

But we’re not done.

Our predictions don’t count for much – no-one is paying attention, anyway.

But what if you’re, say, an ASX-listed company CEO.

And investors want to know what you’re expecting for the current financial year.

You get up in the morning, look at yourself in the mirror, and what do you think to yourself?

The best ones – the honest, self-aware ones – will shake their heads ruefully and mutter “Why are they asking me? I’m doing my best to run the business as well as possible, but I don’t have a crystal ball…”

The less-great ones – those for whom hubris and arrogance are regular bedfellows – will rely on their overinflated egos and self-assurance and think “I’m glad they asked. I’m so good, I can forecast these things with confidence!”

I jest.

A little.

But the biggest problem?

Both of our mirror-gazing CEOs will, that day, make a forecast anyway.

They’ll tell the ASX what they think will happen.

It’ll be (mostly) honest, based on their best guesses, usually with a strong dose of optimism and self belief thrown in.

And investors, who, like Mulder and Scully (from the X-Files – ask your parents) just ‘want to believe’ will duly listen, and factor those forecasts into their own investment decisions.

The blind leading the visually-impaired?

You betcha.

Why do CEOs do it?

Because, as John Kenneth Galbraith observed, “…pundits forecast not because they know, but because they are asked.”

Because investors have become so used to management forecasts, we expect it. We demand it.

Because CEOs want to be popular, and liked, and respected, and supported. So, when the market asks, they answer.

Which begs the question: Why do investors expect them to know?

The answer to this one isn’t much better.

Because we hate uncertainty. Because we want to believe that CEOs have magical powers of foresight. Because we like to believe they can somehow magically manifest the future they forecast.

Because, as one industry insider once said, in response to my question “Well, what else would we put into our spreadsheets?”

True story.

We turn a blind eye, choosing to believe the fiction, rather than question. Because it’s easier that way.

Doesn’t this whole thing just sound a little bit bonkers.

Or more than just a little bit.

We are so desperate to avoid uncertainty that we’ll willingly suspend disbelief in exchange for the emotional comfort of an almost-baseless forecast.

CEOs are so keen to please (and to be seen as being ‘in control’) that they’ll consciously and subconsciously go along with the charade, publishing a forecast because, well, we asked.

Truly, it is the stuff of collective delusion.

Worse, when those forecasts are missed, we blame the CEO, as if it was their fault.

Perhaps more insidiously, we slap those who guessed correctly on the back, praising their foresight.

My 9-year old knows better than that.

He might try the same thing, sometimes, but at least he’s honest enough to ‘fess up when we call him on it.

The bad news?

It’s not going to change.

The charade will roll on, month after month and year after year.

And if you reckon that’s bad, I have even worse news for you.

There is no-one more hell-bent than a CEO who’s given a public forecast.

They will move heaven and earth to hit that number.

Reckon that’s a good thing?

Ask anyone who’s worked for one of those CEOs.

The long term damage done in pursuit of short-term objectives is frightening.

I’ve worked for businesses that have sold weeks and weeks of extra inventory in the last week of a year, just to get a number.

I’ve known companies to destroy brand equity by giving massive discounts to try to get a few more drops of juice out of a dry lemon.

They tell themselves it’s a one-off.

They tell themselves they’ll make up for it next year.

But when ‘next year’ comes, there’s a sales hole already (from all of that end-of-year stupidity), so they end up having to go even harder, just to catch up.

And on and on it goes.

It is corporate madness. Pure and simple.

The solution?

I’m glad you asked.

I have a few:

– Look for great management. People who say ‘I don’t know’. Or who don’t give baseless / best guess forecasts.

– Ignore the predictions of those who do give forecasts. But know that they’ll be sorely tempted to make suboptimal choices if they start to fall short.

– Focus on the long term. And prioritise businesses they do the same.

Frankly, I will give a management team bonus points for refusing to give a forecast, even if the professional investing class cry foul.

I wish more of them did it.

In the meantime?

It’s up to us to choose wisely.

And to remember that we don’t have to play the investing game by rules that don’t make sense.

Fool on!

The post The most useless thing a CEO can do… appeared first on The Motley Fool Australia.

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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