Good afternoon,

The ASX 200 had a bit of a consolidation week, only adding 0.35%. Energy rallied (VEA +11%, WHC +8%, ORG +6.6%) while Consumer Staples was the worst performer after a decent nine months or so (BGA -4.8%, TWE -3.9%).

While reporting season was probably best classified as ‘not too bad’ with market earnings up around 8% and 6-7% excluding resources and banks, the key thing I noticed was the heightened level of ‘drama’ on what an objective viewer would consider relatively benign results or news.

Citi observed that despite few instances of earnings surprises being above 5%, share price returns averaged 8% in August (either positive or negative).

Goldman also had similar sentiments, finding that average share price volatility (or dispersion of returns) experienced by a company on the day it reported this month was 4.6x its typical daily trading average (where historically the average increase through the day of reported lifts to ~2.5x), indicating an uplift in single stock volatility this month of some 86% on previous reporting periods. (Source: Ophir Aug Letter to Investors, Goldman Sachs)

Returns were very concentrated as well, high growth and high quality continue to be revalued higher and higher. Expensive companies getting more expensive (and those that miss expectations get crushed!)
(Source: Ophir Aug Letter to Investors, JP Morgan)

I don’t think you want to be dancing with that sort of revaluation, particularly when it’s moved at such a quick pace. I’m leaning towards moderate-growth at reasonable prices rather than these high growth/high price stocks. I also reckon there’s money to be made in picking ‘improving quality’ businesses. Average return, average moat businesses with favourable tailwinds and decent management teams. Last week we highlighted Ausdrill (ASL) and Integral Diagnostics (IDX) which both fit these criteria in my opinion.

Seneca’s 1 year anniversary

On Thursday our business will be 1 year old! I want to take this opportunity to thank all my loyal clients for there continued support. Without it, Seneca couldn’t exist, and I wouldn’t enjoy coming to work as much as I do each day. I’ve been somewhat surprised at the speed at which we’ve grown our client base over the past year and am keen to keep that momentum going into year 2. If you’d like to have a chat about becoming a client, my contact details are below.

Movers and Shakers

Slightly modified movers and shakers, just testing out a new format. This week we’ve got the top and bottom performers for the rolling week on the All Ordinaries (casting the net a bit wider). Not much to interest me on the positive side of the ledger this week beyond what appears to be a bit of a bounce in the mining services names down the bottom of the list.

Aged care providers are getting whacked today after the announced Royal Commission. Nearmap (NEA) gave up some of its substantial recent gains, and that’s about it.

Have a good week,