Since the GFC one of most unpleasant feelings for an analyst or fund manager is when a stock they hold announces a “Trading Update”. Since 2008, this has almost always been a profit downgrade, which then results in a sharp price fall, gnashing of teeth and tears from the analyst who recommended the stock. A recent example of this came from Flight Centre who warned two weeks ago that they were unlikely to meet their targeted profit growth due to consumer confidence over the Australian election and the Brexit referendum in the UK. The company’s share price fell by 17% wiping $627 million of the travel company’s market capitalisation based on a change in expected profit in 2016 of only $30 million! In this week’s piece we are going to look at downgrades and next week I am going to follow up with a piece on earnings shenanigans, or what a company can do to dress up their earnings.