The Distorted Truth
Business news headlines, August 25, 2022
Financial Post
“Profits at two of Canada’s Big Six banks began to buckle in the third quarter as they set aside larger stores of cash for bad loans amid a darker economic outlook.”
“Royal Bank’s profits fell to 3.58 billion with adjusted earnings of $2.55 per share missing the average analyst expectations of $2.67 per share.”
Toronto Star
“RBC’s profits took a hit due to higher than expected provisions for loan losses totaling $340 million more than the $296.8 million predicted by analysts and a sharp turn from the $342 million it released in the previous three months.”
The Globe and Mail
“On an adjusted basis, RBC said it earned $2.55 a share while analysts expected $2.66 a share…
Investors punish banks that missed the mark. Shares in RBC fell 2.6 per cent on Wednesday.”
I have underlined a few key words here and grouped them together under different headings to illustrate how the press can distort the truth by putting too much emphasis on the wrong things.
Earnings results
Fell
Hit
Buckle
Missed expectations
Investor reaction
Punish
This negative slant on the truth is based on Royal Bank not meeting analyst expectations. Let’s face it, whatever they predicted or expected earnings to be, analysts simply got it wrong, so perhaps investors should pay less attention to their flawed forecasts in the future and focus on the fundamentals instead.
Here is another way to report what happened in my opinion:
Royal Bank of Canada made a huge profit of $3.58 billion and managed to keep its loan loss provisions in line during the first six months of the year despite the softening economic outlook.
This headline is no less closer to the truth than the first three but far less sensational. It would comfort investors who already own the stock, knowing that Royal Bank is among the strongest, most profitable and arguably most prudent managed banks in the world. This might even encourage them to add more to their holdings as long-term investors and take advantage of the higher dividend.
It would definitely bore traders and speculators though because it doesn’t signal loud enough for them to gamble on what the next move might be.
Our job is to interpret the news and analyze the facts as objectively as we can before making investment decisions. We do this to protect our clients and their portfolios from the vagaries of the financial markets and from the emotional stress caused by sensationalizing articles in the press.
David J. Angas, CEA
Senior Financial Advisor
Family Wealth Counsel Advisor Group/Raymond James Ltd.
The views are those of the author, David Angas, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.
