What Is Actionable?
The term "actionable" refers to a business directive or investment strategy that can feasibly be accomplished shortly. Company managers and investors try to identify things that are immediately actionable because they may be prerequisites for accomplishing future goals and higher-level directives.
Factors that may affect when decisions are actionable include fundamentals and technical factors, as well as market sentiment.
- An actionable item is a business directive or investment strategy that can feasibly be accomplished shortly.
- Managers and investors try to identify items that are immediately actionable because they may lead to the accomplishment of future goals.
- Corporate directives may be related to areas like pricing, production, business relationships, marketing, and demographics.
- Investors often look at certain times of the year when their investments may become actionable.
Timing is very important in the business and investment worlds. Businesses need to be able to plan how they'll grow and move forward in the future. Investors need to be able to make their buy and sell decisions at the appropriate time if they want to make any money.
Some directives need to be taken in the immediate future in order to meet long-term goals. Similarly, when the market direction changes, such as in a recession, businesses need to adapt quickly.
An actionable strategy is one that can be executed in the short term to reach these goals and prepare a business for what lies ahead. In that respect, managers need to have an understanding not only of their business, but the economy, its outlook, the industry it operates in, and its competitors.
The financial definition of actionable is different than the legal term, which means that something has provided sufficient grounds to file a lawsuit.
A corporation may use this strategy to help set it apart from other, similar companies in the industry. Corporate directives may be related to pricing, production, business relationships, marketing, and demographics. For instance, companies may evaluate and undertake new partnerships in order to meet their long-term objectives of entering a new market.
Investors often look at certain times of the year when their investments—either current or proposed—may become actionable. Such times are often around earnings season because it's a natural time to assess where a company is heading and how well it has accomplished prior goals set for the current period.
Another time when investment decisions may move from proposed to actionable is when changes are made to short-term interest rates, or when major life transitions, such as changing jobs, buying a home, or retirement, are just around the corner. Furthermore, a mutual fund may spend a month researching a company, but only when an actual trade to purchase the stock is prepared does the decision become actionable.
There are a number of factors that may affect when a business or investment decision is actionable, including fundamentals, technical factors, and market sentiment.
In an efficient market, stock prices would be determined primarily by fundamentals, which at the basic level, refers to a combination of two things: an earnings base, such as earnings per share (EPS), and a valuation multiple, such as a price-to-earnings (P/E) ratio.
Technical factors are the mix of external conditions that alter the supply of and demand for a company's stock. Some of these indirectly affect fundamentals. For example, economic growth indirectly contributes to earnings growth. Technical factors include the following:
- The economic strength of the market and peers
- Incidental transactions
- Demographics: Some important research has been done about the demographics of investors. Much of it concerns two dynamics. The first comprises middle-aged investors; those who are peak earners who tend to invest in the stock market, and older investors, who tend to pull out of the market in order to meet the demands of retirement.
- Trends: This is often when a stock simply moves according to a short-term trend.
- Liquidity: This is an important and sometimes under-appreciated factor. It refers to how much investor interest and attention a specific stock has.
The third factor—market sentiment—refers to the psychology of market participants, both individually and collectively. This is perhaps the most vexing category because investors, management, and analysts know it matters critically, but are only beginning to understand it. Market sentiment is often subjective.