DEFINITION of 'Actionable'

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 currently actionable because they may be prerequisites for accomplishing future goals and higher-level directives.

BREAKING DOWN 'Actionable'

This usage is different from the standard legal definition of "actionable," which means that something has provided sufficient grounds to file a lawsuit. For example, 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.

Investors often look at certain times of the year when their investments (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.

Factors That Affect When an Investment Decision Is Actionable

Fundamental Factors

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)
  • A valuation multiple, such as a P/E ratio

Technical Factors

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:

  • Inflation
  • Economic Strength of Market and Peers
  • Substitutes 
  • Incidental Transactions
  • Demographics. Some important research has been done about the demographics of investors. Much of it concerns these two dynamics: middle-aged investors, 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. Often a stock simply moves according to a short-term trend.
  • Liquidity is an important and sometimes underappreciated factor. It refers to how much investor interest and attention a specific stock has.

Market Sentiment

Market sentiment refers to the psychology of market participants, individually and collectively. This is perhaps the most vexing category because we know it matters critically, but we are only beginning to understand it. Market sentiment is often subjective.

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