A useful tip for preventing loses

Stockpickers.co.uk turned into mystics yesterday as we predicted the outcome of today’s Boohoo trading update. We have noticed a recent trend amongst expensive, high P/E shares, that strong trading updates matching or beating market expectations have prompted a muted or negative reaction in the share price. Recent notable victims have been IQE, Quiz, Gear4music and Boohoo itself back in September. This prompted us to predict that the inevitably strong Christmas trading update from Boohoo wouldn’t be enough to stop a rotting reaction. Here is the evidence:

twitter evidence mystic

Link to twitter conversation: https://twitter.com/StockpickersCo/status/951081749320208389

We were right. Boohoo announced this morning that group revenue for the period was up over 100% compared with the same period last year, prompting a full year guidance lift from 80 to 90%. Yet the share price has ended the day down 8%.

It’s no secret that global asset prices, including equities are have become very expensive after this bull has been running solidly since the 2009 financial crash. The FTSE250 has gained a staggering 15% this year. It seems nothing has been able to slow global markets down these last 9 years, despite best efforts from political surprise, central bank policy and sovereign debt crises. Considering the average bull run for the S&P index over the last 90 years is a mere 8.9 months, this current one is certainly startling. Questions are being asked of how much life this bull has got left in its legs, with influential figures such as Neil Woodford and Bill Gross publicly stating that things must surely break soon and global equity will start a bear run. With this in mind it’s understandable that investors are becoming more sceptical of pricey growth stocks because if the markets started diving these would be amongst the first to shed market capitalisation. In a typical bear run investor sentiment changes, they are less able to justify lofty prices and high-risk than they were before now that things are looking bleak.

What can you do about this? Despite the temptation to invest heavily in high P/E growth stocks to take advantage of this bull run, practice good risk management, look to reduce the high-risk element of your portfolio. Also, if you are holding currently holding shares that fit this description, pay close attention to trading updates. Consider placing tight stop loses orders on your holding on the eve of the update to minimise loses.

Note: we appreciate that there are many other complex factors effecting each of the equities mentioned and their trading updates. Therefore, we don’t believe this trend will be relevant to every high P/E share and it only gives a small part of the picture but we believe it is noteworthy and can contribute to making an informed decision.

Disclaimer: When investing in equity markets your capital is at risk. All content posted on stockpickers.co.uk is opinion and not intended to be instructional. The site cannot be held responsible for any losses upon the following of the opinions expressed. 


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