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How, investors wonder, can you not measure up to the earnings number but be saved by a "good" conference call that is positive and upbeat, wherein the company presents reasons for falling short as well as an optimistic picture of the upcoming quarter? |
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Why do analysts hear one conference call and walk away positively, giving the stock a reprieve, and yet hear another call and walk away and punish the stock? Sometimes it appears to the casual online investor that analysts, underwriters, and institutional traders interpret information in whatever way will best help them and the companies for whom they work get an edge and make more profitable trades. |
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Investors further wonder how one company can have all their proverbial ducks in linemake the number, equal the whisper, and have a good conference calland still see a sell-off the next morning, as traders have "bought on the rumor and sold on the news." Another company may skyrocket when it, as they say, "blows out" the earnings number. There was a period during the summer and early fall of 1999, for example, when every tech company that came through with good earnings immediately sold off in the after-market and the next morning. This was viewed by market commentators as an indication of the skitishness of the market at that time, and that traders were oriented toward locking in profits rather than taking greater risk. |
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Other Cyclical Events to Be Aware of |
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The beginning and endings of months and quarters tend to be related to good or bad performance of the market. The beginning of months tends to be positive, while the end of a month can be choppy, as portfolio managers want their month-end portfolio to look good. So they tend to sell stocks that are underperforming the market. |
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In the same way, the end of quarters brings on the same kind of selling, as money managers want to lock in gains of their winners and dump their losers. The buying and selling at the end of a month by big fund managers is called "window dressing," and simply means they want to end the quarter (and the year) with what are considered the top-performing stocks at the time. They want to be able to show those they work for that they have positions in the popular stocks. So, for the long-term investor, you simply want to be aware of when this is taking place, as it may affect a stock you are considering buying. |
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