Q: There has recently been a spate of earnings downgrades including stocks as big as Woolworths, right down to small caps like Surfstich. What is contributing to this and how do you try to avoid stocks that are due for a downgrade?

Livewire Collections

Bringing together the best financial minds and insight in Australia.

In this Collection... First published on 12th May 2016

Few feelings are worse for an investor than seeing a holding sink on the back of an unexpected profit downgrade. As holders of Surfstich (down ~72% YTD) or Murray Goulburn (down ~60% YTD) are no doubt aware, these downgrades can be devastating to performance. Common wisdom holds that avoiding the portfolio bombs can contribute more to relative performance than trying to pick the big winners. So as May ‘confession season’ rolls on, what can investors look out for in their portfolios to try to identify the potential downgrades? We asked three of our regular contributors how they go about identifying and avoiding potential downgrades. Responses come from Chris Prunty at Ausbil Investment Management, Tim Kelley at Montgomery Investment Management, and Sean Fenton at Tribeca Investment Partners.