Conference Calls are a Web of Lies

Dedicated analysts on the sell-side or at buy-side firms with heavy stockpicking activities find themselves spending dozens of hours ever quarter listening to earnings conference calls.  And on those calls, executives repeat public information that has already been stated in the press release and sometimes offer color commentary surrounding the numbers themselves.

They take mind-numbingly meaningless questions from big firm analysts about Day Sales Outstanding figures or other such pieces of trivium that have absolutely no bearing on the stock’s future performance whatsoever. In most cases, the analysts are asking these questions as a form of marketing for their firms’ trading desks. The firm’s clients, institutions that buy and sell the stock, are also on the call and the analyst’s question is like a commercial.

Also, in most cases the executives are making predictions about their own future (it’s been proven that they are as bad at this as everyone else is) and putting a rosy shine on either their results or their current efforts to satisfy shareholders that all is well.  Nothing wrong with this, it is their job.

What is wrong with this is when we delude ourselves into taking what we hear on the call at face value. Most of the time, we are being jerked off. It took me quite some time to learn this lesson, hopefully the below cuts that time down for you…

From the Wall Street Journal:

In a recent paper, Paul Brockman and McKay Price of Lehigh University and Xu Li of the University of Hong Kong parsed transcripts of company earnings calls, counting up positive and negative words in an effort to determine the overall tone of executives on a call.

They found that executives who used positive words, like “enjoy” or “pleased,” were more likely to turn around and sell their own company’s stock over the next 30, 60 and 90 days.

On the other hand, executives who used negative words, like “fail” or “unfavorable,” were more likely to buy their own company’s stock.

The effect was especially strong in companies with small market capitalization and when the chief executive did the talking.

“It’s important to pay attention to all these signals that you’re receiving as an investor.” Prof. Price says. “You should focus on the numbers. It’s also important to pay attention to the soft signals” conveyed on a call, he adds.

But when we own these stocks, we need listen regardless.  Just in case 🙂

Source:

If Executives Aren’t Buying Shares, Should You Be Selling? (WSJ)

What's been said:

Discussions found on the web
  1. check out this site commented on Sep 24

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2013/02/11/conference-calls-are-a-web-of-lies/ […]

  2. bitcoin loophole reviews 2020 commented on Sep 25

    … [Trackback]

    […] Read More here on that Topic: thereformedbroker.com/2013/02/11/conference-calls-are-a-web-of-lies/ […]

  3. immediate edge deutsch commented on Sep 28

    … [Trackback]

    […] Find More on on that Topic: thereformedbroker.com/2013/02/11/conference-calls-are-a-web-of-lies/ […]

  4. bitcoin era commented on Sep 30

    … [Trackback]

    […] Info on that Topic: thereformedbroker.com/2013/02/11/conference-calls-are-a-web-of-lies/ […]

  5. 링크모음 commented on Nov 09

    … [Trackback]

    […] There you will find 47823 additional Information on that Topic: thereformedbroker.com/2013/02/11/conference-calls-are-a-web-of-lies/ […]

  6. 7lab pharma europe commented on Nov 14

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2013/02/11/conference-calls-are-a-web-of-lies/ […]

  7. td canada trust online commented on Nov 26

    … [Trackback]

    […] Find More Info here on that Topic: thereformedbroker.com/2013/02/11/conference-calls-are-a-web-of-lies/ […]