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Answer:
Dear
Jed,
You're
right. Whisper numbers are making an appearance again.
But first, let's look at the so-called "official"
number and then we'll discuss "whispers."
THE
OFFICIAL NUMBER
Official
numbers are estimates of a company's quarterly earnings
per share, made by Wall Street analysts.
Analysts,
in fact, make their living by predicting how well
(or poorly) they think a company will do each quarter.
These estimates are based on several sources: (1)
information given to analysts by the company itself
(2) data about the industry which the analyst gathers
and interprets and (3) the analyst's professional
interpretation of the overall economy.
The
analyst's firm publishes the estimates for the companies
it follows. These numbers are then picked up by the
media.
THE
WHISPER NUMBER
The
"whisper number" is an unofficial earnings per
share estimate that bounces around Wall Street
trading desks, on specific websites and in online
chat rooms. They're forecasts of what traders and
investors think a company will earn.
THE
COMEBACK
During
the bull market, whisper numbers pretty much went
away. However, during the second quarter of this year,
a number of companies came in with earnings higher
than the analysts' official estimates. This trend
has lead to a resurgence of whisper numbers among
investors.
These
investors feel analysts have been too conservative
in their estimates -- perhaps because of the stalled
economy, international concerns, the situation in
Iraq and other overriding matters.
MY
CAUTIONARY POSITION
If
you decide to browse about a whisper site, take time
to read either the "FAQ" or the "About Us" section
to find out how the information is gathered. You'll
find it's generally quite vague. Most whisper sites
tally up estimates of what individual investors (not
professionals) think a company will in fact earn.
Two
of the oldest such sites are WhisperNumber.com
and GetWhispers.com.
GetWhispers is currently not available as it's in
the process of setting up a paid subscription format.
Please
don't invest solely based on whisper numbers. Keep
these points in mind in determining whether or not
to listen to whispers:
(1)
The whisper number by its very nature differs from
analysts' forecast.
(2)
The whisper number generally comes into existence
because a company's earnings actually exceeded or
are expected to exceed official Wall Street expectations.
(3)
The reason why analysts may not be on target is because
a company's CFO tends to present a fairly conservative
outlook about the company.
(4)
Not all stocks have whisper numbers. If there is no
significant upward or downward earnings surprises
in the official number, it's not likely that a whisper
number will be posted for that particular stock.
(5)
Earnings estimates by analysts may be conservative
but they are also largely intended for long-term investments
-- by individuals, mutual funds, and pension funds.
Day traders, however, are more likely to find whisper
numbers relevant in that they move in and out stocks
so quickly.
THE
BOTTOM LINE
It's
always wise to gather as much data as you can about
a company before buying or selling its stock. In the
process of collecting and reading information, whether
it's the whisper number or the consensus number, you're
bound to learn more about the company than if you
maintained a coach potato position.
However,
do not, I repeat, do not rely solely on whispers.
Take them with a grain of salt. And check independent
analysts' stock evaluations in Value Lines Investment
Survey, available at most libraries and by subscription
at www.valueline.com.
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