Dropping foul news into the markets just before a long weekend offers the chance for people to have forgotten about it by the time the markets reopen. Or, perhaps, that’s often the hope, as with Harland & Wolff’s (LON: HARL) announcement that revenue for the year just gone – to Dec 31, 2022 – will be about half what was expected. This announcement hitting on Dec 30th. The Times: “Harland & Wolff left it until the last trading day of the year to admit that its revenue for the past 12 months would be less than half the level expected until now.”
Clangers Happen, Of Course
Hmm, yes, that is a bit of a clanger. The fuller description if the results is here. It’s not entirely and wholly a disaster, some good part of it is a deferral into the next quarter of expected revenues. But there are project cancellations there as well – mutual agreement to simply not continue a contract for example.
It’s possible for us to view this in two different ways. One is directly about H&W which is that it has a specific problem here. The overheads of running the business are such that it needs to expand sales considerably to cover them. OK, not an unusual idea. But this sort of contract engineering, well, it’s difficult to expand sales with any speed. The faster you try to do it then the worse the contract terms you end up signing is the usual experience. Yes, yes, there’s that large MoD contract coming down the pike – maybe – but those can turn out to be money pits. The interaction between government changes in spec and the realities of manufacturing can be grisly.
From The Specific to The More General
OK, but that’s specific to H&W. We can expand that out to the sector if we wish. Unless there’s some particular and extremely fine distinction that a business possesses manufacturing is a large-scale enterprise. Given that this is pretty much the lesson of the entire Industrial Revolution – economies of scale matter – then we will want to think of that when we contemplate investing on manufacturing businesses.
Yes, indeed, there are the specialists who have that fine edge. But someone small and in a general manufacturing sector is going to have a very hard time of it.
This Applies Across Markets
We can also expand this lesson out to the markets more generally. That drop the clanger when the markets are going to be closed idea. Those announcements just before the long weekend – heck, on a normal Friday night – very rarely turn out to be good ones. They – quite remarkably – never do turn out to be about how some glorious new contract has been won, they’re always about how terrible things have suddenly turned out to be.
Now this observation has more of a point to it for us as traders. Because it introduces risk for us if we leave positions open overnight or over the weekend. If bad news is likely to be dribbled out when no one is paying attention, then do we still want to have open positions when no one is paying attention? That’s assuming we’re not already trading on the knowledge of the bad news of course.
Day trading might therefore have its compensations, if we close out before that witching hour when bad news might be dropped.
But It’s Not All One Way
On the other hand, this runs smack into an interesting finding. That stock markets tend not to rise during the day. Academic background is here, the FT on the idea is here. It does seem to be true – weirdly, that markets as a whole don’t rise during the trading day. But they do so after hours and before open. Markets as a whole are, of course, just the aggregate of all of the individual price movements.
So, we’ve two entirely different effects going on here. One is those disaster announcements. They tend to be made on quiet days, or at the end of trading periods before weekends and holidays. That tells us when we don’t want to have open positions. But on the other hand at the system level, we’ve this effect of the price changes we want to trade generally happening outside normal market hours.
There’s No Actual Answer
All of which is a bit of a conundrum because there’s no obvious answer to this. Do we want to carry positions over trading days or not? Well, the correct answer is that that’s up to each individual and their risk appetites. We just do have this difference between the specific and the general that we’ve got to deal with.
Oh, and the relief? That relief all ’round? Well, we were all expecting someone to drop something on the last trading day of the year. The relief is from everyone who didn’t have a long position in Harland & Wolff. You know, this year it was them, not my position.
