Episode Transcript
The Finance Ghost: Welcome to episode 242 of Magic Markets. We are going to be talking today about quarterly reporting. It's become very topical because a lot happened in the news over the past few days in the US, including a lot of stuff that made social media feeds really awful places to be.
But one of the other things that came out was President Trump talking about his dislike for quarterly reporting. And now we know that the SEC is having a whole look at that and will it change and anyway - lots to talk about Moe that obviously fits very much into our world because we look at US Company results every single week for Magic Markets Premium, we do deep dives on that. I personally include something in Ghost Mail every day about international company results. So those who don't get the Ghost Mail newsletter should definitely go check that out if you'd like to get a snippet of what's happened on international markets each day.
Moe, welcome to the show and yeah, looking forward as always to chatting through this with you.
Mohammed Nalla: Indeed. Ghost, obviously really excited that Magic Markets Premium can complement some of what you're doing in Ghost Mail because you get the snippets over there, if you want detailed bottoms-up analysis on specific stocks, you've got to be in Magic Markets Premium. Just 99 bucks a month. That's a shameless plug.
I think let's talk about this quarterly reporting story, right? Because it's just - it's the Trump administration, right? They're going to throw us curveballs every couple of weeks, every couple of days. And I think the latest curveball here is not new, right? This is stuff that has been in the markets before, maybe not under the Trump presidency, but back in 2018 there were some talks around do we move from quarterly reporting into biannual reporting? It kind of went away back then.
And I look at this tongue in cheek because I'm like, if you're a Trump Insider, you don't need quarterly reporting. You just need to tweet about a stock and all of a sudden it either goes up or down based on the latest tariffs. That's very tongue in cheek of me actually, I’ll just save some of that cynicism for another time.
But the latest on this is that Trump has just renewed calls for US public companies to report every six months rather than every three. Now this is not foreign to certain markets that are out there - if you go to Europe, for example, lots of companies, they only put out results every six months. I know in South Africa as well, you don't have quarterly reporting as something that is mandated. I think a lot of companies do that. And where they don't do that, they put out some guidance, right?
So this is just because the market demands the more transparency. They like to know what's happening under the hood at some of these companies. And so for me, the way I want to look at this is let's look at some of the pros and cons. What’s the merit behind this argument? A lot of that hinges around a need to move beyond short-term thinking, yes, maybe quarterly reporting predisposes the market towards short term thinking. That for me though doesn't quite hold water anymore, right Ghost? Because at the same time we're having discussions around opening up for 24/7 trading on US markets, so that's very short-termist in nature. If you want 24/7 trading, it's because you want to be in and out of a stock, even over weekends, whatever that might be. That doesn't quite square with this narrative of hey, we actually want markets to be a little less focused on the shorter term.
And I think that's where I'd like to maybe start off is what does quarterly reporting actually do and what would this change actually mean? Because quarterly reporting for me means greater transparency. But on the other side, if you're the company, it probably means a higher regulatory burden, right? You're going to have to produce results every single quarter. Whether there's something to write about or talk about or not is debatable. And so by actually going with less frequent reporting, it might mean less transparency in markets, but at the same time it might mean less of a regulatory burden on businesses and the ability to leave management teams to focus on longer term decision making, investing in their businesses and so forth.
So that's how I'm framing it at a very macro level to say, yes, there are some positives, there are some negatives, but I'm pretty keen to hear your view on this. I know - before I even hand over to you, Ghost - the CFA Institute has come out and said they think a move to biannual reporting is a bad move. They certainly advocate for a lot more transparency and they believe that by actually moving reporting to a much less frequent cadence, if you want to call it that, that disenfranchises the very retail investor that markets are actually intent on bringing into the fold and into the education stream. That's very much along the lines of the work that we're trying to do at Magic Markets Premium.
Ghost, what's your view at a very high level?
The Finance Ghost: Yeah, that kind of does already deal with some of the detailed stuff. I mean, my view is I love quarterly reporting. That is my view. I think that it forces management teams to come to market more regularly. I think that it gives investors fresher information to work off, which is really valuable because we're in a very fast paced world, particularly with the amount of digital disruption out there, etc. Yes, there might still be some industries that move relatively slowly, but even then I think you'd be quite hard pressed to find an industry that isn't being affected by the digital revolution and everything else. I mean, you'd really have to go into some of the old school cyclicals or some of that kind of stuff, like mining or whatever.
So, yeah, it feels to me like quarterly reporting is a good idea overall. And I hear the short-term argument all the time and I think that was the argument that Trump put out there, which was to say it forces short term thinking, etc. etc. I disagree with that pretty much wholeheartedly because there are a zillion examples of companies listed on the market that quite simply say to the market, hey, just understand, the timing of the investment we're making in our business. It's going to vary by quarter, it's not going to be a linear journey, etc. etc. And so the market then learns and understands that and bakes that into its expectations.
So for me, maybe this is slightly harsh, but at the end of the day, if a business finds itself in a situation where releasing quarterly creates a short-term problem for management, they're actually just not managing it very well and they're not explaining it to investors very well. They're not telling their story at all.
It just doesn't make sense - what difference does it really make to do every six months versus every three months in terms of how the business behaves and invests and everything else? Three months, six months, it's all short term. The difference is you're just getting much fresher information as an investor, which I think is really valuable, and also access to management to see the Q&A, to actually see what analysts are asking. For me, if it takes longer to report, the only winner is the company management team, no one else.
Mohammed Nalla: Yeah, I kind of agree with that, right Ghost? At the end of the day, I think let's maybe give Trump the benefit of the doubt. I'm going to be very charitable here. And I'm going say if management is focusing on “we've got to keep these numbers juiced so that it looks attractive on a quarter by quarter basis” maybe that filters through into their capital allocation decision making, so maybe there's some merit to the argument to say what if we remove the pressure for you to actually just keep the market happy every quarter with some numbers that look attractive, then you're actually not focusing on sometimes taking the harder decisions. And again, that's part of the merit behind the entire private equity or private capital markets as well, is that they're effectively immune to some of that public scrutiny for a long time. And I think there might be some merit to that.
But I'm going to actually backtrack a little bit because I tend to agree with you. I am a fan of quarterly reporting. I think it's a good thing. And I think less transparency or less frequent reporting is actually pretty dangerous for investors. Because if something bad's happening in the business, if there's some slippage, whatever that might be, you'd rather find out sooner rather than later. And so this now creates an informational asymmetry because remember, at the end of the day, if you're sitting in a big investment bank or you're some big hotshot pension fund, you're going to have access to management. You might be able to get on the call and say to the CEO, look, we want to speak to management, let us know what's happening in the business. And so those big players would have this advantage over the average investor, over you, over me, over anyone out there pretty much that doesn't have access to call up the CEO and say, hey, we demand a meeting. We want to know what's going on.
That for me is actually bad news because it means less efficiencies in the market. I mean, we've got to assume, the market as irrational as it can get, still plays towards greater efficiencies if you have greater transparency and transmission of information.
Now where do I go with this? Is that ironically, if you have more information, even if it breeds short-termism, that in and of itself breeds opportunity, Volatility breeds opportunity. If someone is in fact a long-term investor and if a company comes out and now in the narrative of this is short-termism, you get one quarter of bad results and the share price actually collapses and you see a massive sell-off, that's actually an opportunity for that long-term investor because they're going to have done their homework, they're going to say we believe in the long-term narrative here. We're going to look through this and it gives them an opportunistic buying, let's call it catalyst. And that for me is something that arguably would go away if you move towards less frequent reporting.
So in aggregate, I think I land on: yes, I like quarterly reporting. I think it should stay.
Where I want to go now with this discussion Ghost, I don't know if you agree, but I'm going to head in this direction is…
The Finance Ghost: …yeah there is one other thing I wanted to say though before you move on from that, assuming you're done with that point, which is I would say agree that if you have fewer buying and selling opportunities, fewer catalysts for action in the market, that is not good. If you think about the entire market infrastructure, that's a negative, right?
So stockbrokers, the way the banks work, CFD providers, leverage the whole shebang - the whole ecosystem of US equity markets requires huge liquidity. That's why companies list in that market, because it is the deepest capital pool known to man. And again, if you just take away catalysts for trade, catalysts for news flow, catalysts for opinion, you just making everything worse. I just don’t really understand the point.
Mohammed Nalla: Yeah, I agree. You need those differing opinions that are out there. You need the disagreements with management, you need investors to disagree because that's what makes a buyer and a seller on both sides. And that feeds into this point you've mentioned around efficient capital markets, deep liquid capital markets.
It plays very nicely to the point I was trying to prime for, right, which is to say it's all well and good. Trump's come out and he said, look, we want less frequent reporting, but what's the practicality around this? How likely is this to actually get across the line? Now again, there's going to be a lot of conjecture around this, but it's now sitting with the SEC, the Securities and Exchange Commission. And what's important here is that the SEC has now said that they will actually make this a priority. So that means that they're going to review this and see does it actually make sense. It's not just a talking point. So I think that's important because it's very different to what we've had in the past. It means the SEC is going to look at this and they'll come to whatever determination they come to. But what I actually want to land on here is that even if they decide to look into this and say, yeah, it's mandatory, it now becomes six months, not every quarter, you may still find a lot of companies that decide to still put out quarterly reporting because a lot of companies know that they've got to keep their investors primed. They've got to keep the investors informed on this.
A lot of companies are probably not in agreement that they should move towards less frequent reporting. And in fact, if they're supporting less frequent reporting, that's probably going to show up as a risk flag for me. If there's a company out there that says, yes, okay, we're going to six months and we're not going to put out an update, guidance, whatever it might be, on a quarterly basis, that's going to pop up as a risk flag. And I think companies are smart enough to realise that. So if we drill down into the practicalities, there's obviously the regulations part, which sits at the SEC. It may even need more legislative oversight, I don't quite know the legalities of that in the US we'll see how that actually plays out.
But then there will also be a period of transitions because companies are going to have to adjust to this. A lot of investors or analysts out there have their models baked in with a quarterly structure. There's going to be some change that comes through in terms of how companies are assessed as well. So if we wrap all of this up, you've also got the audit requirements that come through and does this play into quarterly reporting versus audit requirements? Do those kind of correlate or will there still be a need for more frequent auditing? I'm not quite sure where that lands, but what I do think is that we're going to walk down this road, it's not something that's going to happen overnight. First and foremost, the SEC is probably going to look into it in a lot of detail. And so even if it does materialise, it's not something that I'm seeing in the 2025 year. In fact, I would say you're probably looking at the latter part of 2026 before we see any movement on this particular issue. Certainly will be interesting. But I hope that quarterly reporting wins out over biannual reporting just because it's more line of sight. And again, it feeds into what we're doing on Magic Markets Premium as well.
The Finance Ghost: So yeah Moe it almost becomes an indication of the underlying business and the processes and everything else. We've actually covered Oracle in Magic Markets Premium this year and what's really interesting is that they get their earnings out super quickly. They actually - it's like they claim to fame is that of the large tech companies in the S&P 500, they get their earnings out the fastest after each quarter end. And that's because they run it on their own software essentially. So it almost becomes a marketing tool for them.
That's the other thing - the infrastructure is there, it's all been built. This is not an incremental cost to players in the market. We're not saying to them, hey, you currently do six months, now go to three. Because I think if we tried that on the JSE, unfortunately there would be a big kickback from listed companies. This is the other way around. All of this stuff exists in the US. It's there right now. It's like saying, hey, we have this big shiny, beautiful toy. Don't play with it. Why? Just doesn't really make any sense.
Like I personally would love to see quarterly reporting on the JSE. I think it would do wonders for liquidity. And I know that there are a lot of different views on this, but I really do - and one of the biggest reasons why companies delist from the JSE and from markets internationally like the JSE is lack of liquidity.
Mohammed Nalla: Yeah, indeed. I'd love to see quarterly reporting on the JSE. I'd love to see it mandated in Europe. I'd love to see it mandated across the world, quite frankly. Let's move towards a global standard. And that standard should be quarterly, not biannual, right?
At the end of the day, if you look at some of the big global names, whether they're Chinese stocks that are then listed in the US so they have to report quarterly, or if you look at JSE listed companies that have a strong international tie-up, I think Standard Bank’s one of those with the ICBC shareholding that comes in there, they put out quarterly numbers, if memory serves. And again, that's something that I value because it gives me line of sight, even if I'm just a Standard Bank shareholder. I get to have a look under the hood every single quarter. I get to decide at every quarter: am I in this for the long run? Is there some slippage I'm concerned about?
Again, it goes back to even if you're a long-term investor, you're going to get the clues towards that long-term trajectory actually accelerating or decelerating. Are you bullish? Are you bearish? You're going to get that on a higher frequency basis rather than having to wait six months where a problem might manifest in the underlying business and then you actually end up with a much bigger, let's say there's a specific segment doing badly, you end up with a much bigger potential loss or a problem on your hands or contingent liability, whatever that might be.
I'm one for transparency, I'm one for communication. The more we can have of that - a good example, we covered meme stocks recently, right? And one of the key critiques around Opendoor was that management was just not engaging actively with what has become a very large retail shareholder base. And again, that plays towards the point of greater transparency, greater engagement from management with the overall investment community rather than just a handful of institutional shareholders. And again, if you don't like that, maybe you shouldn't be listed. If you don't want the quarterly reporting, why don't you then delist and go into the private equity space? There's always room, there are some people in capital markets that like that model and again, there is some merit to it.
But I'm saying don't throw the baby out with the bathwater. The US capital markets are large, they're efficient, they have lots of transparency and that's what makes it so attractive. And this for me, looking like it's a step backward and maybe even chipping away at some of that US exceptionalism. I certainly hope the SEC looks at it and says, yeah, okay, maybe, but we're going to stick with quarterly reporting.
The Finance Ghost: I hope so. What's interesting as well is like you said on Standard Bank, so what they do is they do a quarterly update because of the ICBC stuff - you're 100% right - but it's not a full set of earnings. And I think that's the difference is in the US you're forced to do GAAP-compliant full filings with the SEC in a specific format. It's a whole thing. Whereas on the JSE where they do quarterly reporting, etc. it's voluntary in nature - I always love to see it and I have great respect for the companies that do it.
At the other end of the spectrum, we have companies who - and they get away with it all the time - they release a trading statement which is supposed to be an early warning system the day before their full earnings come out and they're like, oh, guess what? HEPS down 30% - between 30% and 40% - and the very next morning it's like, oh, HEPS is down 34%. Like, well done, finance team, we worked really hard last night to finish that one off. I mean, it's just blatant disregard for shareholders. That’s really what it comes down to.
Mohammed Nalla: I actually want to ask you a question on that because I see that very often on the JSE, right, because they don't have the quarterly reporting - you'll get a trading update that's sometimes a week before, right? So that's generous. If you're saying it's the day before, I've maybe missed some of those, but I see it as such a farce, right? So then why bother? Just wait for your earnings to actually come out. And again, this is why I think quarterly reporting makes a lot of sense. Maybe as a point to land on here, Ghost, maybe there's a lot more nuance here. Maybe in the US the SEC is going to look at this and they're going to say, okay, if you're a company of a certain size or scale, guess what, you're not getting away from it. It's got to be quarterly. I mean, you want to know what's happening in some of the larger stocks that are out there. But maybe if you're a mid-tier player, and maybe if the compliance and operational burden is quite substantial, if you've got a small market cap, then maybe you can get away with a set of numbers as well as guidance every single quarter that's less onerous. It doesn't have to be GAAP compliant, it doesn't have to go into the SEC format. Maybe we end up in a little bit of a hybrid world. I mean, that's also a probable outcome here. In any respect, I still think companies should not shy away from enhanced disclosure because that's what makes efficient markets, that's what creates a market, and that's what creates buyers and sellers on both sides of the order book.
The Finance Ghost: Maybe to bring the podcast to a close, Moe, looking at the time, what I would say is, I know in theory that sounds good, but I think, and maybe this is an unpopular view, the last thing the market needs is more bad small caps. There are some good small caps, but they are very few and far between. Unfortunately. Most of them, it just gets pretty messy. They miss deadlines, they don't get their stuff out in time, they release weird announcements. It's not good.
I just think having a less of a burden for really smaller companies, you almost have to say, well, then why are they listing? The one cool thing with the US is it feels like when you go and look at that market, you're actually dealing with companies that have to stick to really hard rules and a lot of scrutiny and they get rewarded with more liquidity. Maybe not at the absolute tail end of the market, but they do get rewarded with more liquidity. Unfortunately, our local market in South Africa has got companies that have been suspended since forever, always late with financials. It's not good. It's just not good for the functioning of the market.
And I would love to see the JSE get stricter on stuff like trading statements, for example, because it just makes a mockery of the companies that do get them out early and that do actually do things properly. So, yeah, we can only live in hope, but I certainly hope that the US doesn't take us backwards in corporate accountability because that would really be sad.
Mohammed Nalla: Yeah, I can't fault that, right? I think there's definitely some merit to that in that you do have non-compliance amongst a lot of the smaller companies. And again, then maybe the question is exactly as you say. They've got to decide long and hard in terms of do we decide to be listed or if we are listed, do we stay listed? I mean, there's been a bunch of delistings from the JSE maybe because the requirements that are there, even though they're less onerous in the US, are still pretty onerous on smaller companies.
But again, that's what management's paid for. They've got to look at this and say, does it make sense for us to be listed? Do we actually need access to those deep capital markets? Can we actually address our capital requirements through the private markets as well? And I think with the rise of private market players and platforms, some of which we've showcased here on our show as well, that gives a viable alternative and avenue for investors as well as companies that want to operate slightly more in that grey area with less frequent reporting and so forth.
But we're really keen to find out what you, our listener, feels about this entire situation. That's where we're going to leave the show. But hit us up on social media. It's at @MagicMarketsPod, @FinanceGhost and @MohammedNalla all on X. Or go and find us on LinkedIn. Pop us a note on there.
There is a lot that's going to happen between now and maybe the middle of 2026, if that happens on a reasonable timeframe, we'd love to hear your views. Let us know. Until next week, same time, same place. Thanks and cheers.
The Finance Ghost: Ciao.
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