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Wednesday, March 19, 1997
Playing with the pros: how to participate in an analysts'
conference call
Individual investors can often take advantage of this little-
known resource, but be forewarned: it's like shooting hoops
with Michael Jordan
by Michael Brush
When it comes to the stock market, investors need every edge
they can get. So it is no surprise that surfers who play the
stock market regularly use the Net to swap the phone numbers
and access codes needed to snoop on company conference calls.
The calls are regularly held by company managers to explain
things like earnings projections or a recent news event to
their large-scale professional investors.
While these conference calls are meant to link top management
with money managers or analysts, individual investors are
usually welcome as well, and there is nothing wrong with the
exchange of phone numbers and access codes on the Net.
Indeed, the same information can be easily obtained by
calling a firm's investor relations department.
Conference calls are never used to announce major events.
When releasing "material" news -- like mergers, the loss of a
major customer or contract, or earnings results -- companies
are required to issue a press release to make sure the
announcement is as public as possible.
Conference calls are held to fill in the details. They are
usually conducted after the close of the market -- or early
in the morning before the open -- to dampen big market swings
and give investors some time to digest the news. This means
that amateur investors don't even have to play hooky from
work to catch the calls. Those who do miss them, though, can
hear a taped version that usually remains available for about
a week after the initial call was made.
A matter of tone
"Conference calls are very important and are becoming more
and more so," says Joe Noel, a telecommunications analyst
with Hambrecht & Quist in California. "Not only are investors
looking for information about things like earnings reports,
but for the tone of the call. Stocks will trade up or down on
the tone of the call."
The tone of the call, it turns out, can be its most
informative feature. Just ask Dwight Karlsen, of Vancouver,
Wash. Several weeks ago, he tuned in to a conference call
held to discuss the merger between two networking companies,
US Robotics and 3Com.
"In the call, the CEOs of both companies sounded really
upbeat and credible," he remembers. "They methodically laid
out the reasoning behind what they did, and I was actually
pretty pumped after listening to that."
During the call, though, some analysts were critical of the
merger, and news articles the next day questioned the deal.
The stocks dropped in value. Karlsen went with his intuition
and picked up shares on that dip, because of the positive
impression he had after listening to management.
"More and more articles then came out about how it actually
was a pretty good deal," says Karlsen, a self employed
accountant who invests frequently in technology companies.
The stocks regained their footing, and Karlsen's purchases --
based on what he picked up in the conference call -- paid
off.
Likewise, investors who were in on a recent conference call
held by Cascade Corp. when it announced a downturn in
earnings got some insight of what was to come. But it wasn't
just the news in the call that helped listeners get out at
the $44 the stock was selling for at the time (the stock now
sells for around $25.).
Once again, the negative tone of the call -- rather than cold
numbers -- proved particularly valuable, says Rob Scott, a
Pittsburgh, Penn. attorney who listens in on conference calls
to get intelligence for his personal investing decisions.
He contrasts the Cascade call to one held by Ascend
Technology, which held a phone conference at about the same
time to announce a similar softening in business.
"From an earnings perspective, I was actually more concerned
about Ascend than Cascade. But when Ascend opened the next
day, it shot up," says Scott. "Cascade's call was very
similar to the Ascend conference call, and the reaction was
completely different. One of the main differences between
the two calls was basically the tone of voice. Ascend's
management was excited, but Cascade's wasn't."
Like basketball with Michael Jordan
Anyone thinking about snooping on conference calls should be
forewarned: They are not always easy for amateurs to
understand, and a false interpretation of what was said can
lead to big trouble. "The whole trick to conference calls is
to interpret them properly," says Karlsen. "If you come to a
different conclusion than the analysts, and they decide to
sell all their shares, you're left holding the bag."
Indeed, Hambrecht & Quist's Noel warns that amateur investors
shouldn't use conference calls at all, because of the risks
involved. "Conference calls have developed into an art form,
and unless you understand them, it is impossible to compete
with the institutional investor. It is like playing
basketball with Michael Jordan."
Another risk, says Noel, is that management itself may be new
to the game and therefore make the mistake of sending off a
false signal. "An inexperienced management team might not
understand that every little word and every word between the
lines is analyzed, and they might say something stupid."
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