Ice, I agree with your take to some extent. But when the game is about to change, such seemingly inconsequential things do really matter. IMO. BTW, another 'bear' thinks the same way I do (you know what that means! -g-)
contraryinvestor.com
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Nudge, nudge. Wink, wink. Know What I Mean?...And now for something completely different. No more nudging. No more winking. No more "knowing"? Ladies and gentlemen, welcome to SEC ruling FD (Fair Disclosure). Under the ruling, companies most now disclose material non-public information in a public forum. No longer can management's "tip off" their favorite analysts about "soft" earnings or "guide" the analysts to either a correct or beatable number well before a quarterly report. We were quite pleased to see some of the following language in the final ruling:
As discussed in the Proposing Release, we have become increasingly concerned about the selective disclosure of material information by issuers. As reflected in recent publicized reports, many issuers are disclosing important nonpublic information, such as advance warnings of earnings results, to securities analysts or selected institutional investors or both, before making full disclosure of the same information to the general public. Where this has happened, those who were privy to the information beforehand were able to make a profit or avoid a loss at the expense of those kept in the dark.
We believe that the practice of selective disclosure leads to a loss of investor confidence in the integrity of our capital markets. Investors who see a security's price change dramatically and only later are given access to the information responsible for that move rightly question whether they are on a level playing field with market insiders.
Issuer selective disclosure bears a close resemblance in this regard to ordinary "tipping" and insider trading. In both cases, a privileged few gain an informational edge -- and the ability to use that edge to profit -- from their superior access to corporate insiders, rather than from their skill, acumen, or diligence. Likewise, selective disclosure has an adverse impact on market integrity that is similar to the adverse impact from illegal insider trading: investors lose confidence in the fairness of the markets when they know that other participants may exploit "unerodable informational advantages" derived not from hard work or insights, but from their access to corporate insiders. The economic effects of the two practices are essentially the same. Yet, as a result of judicial interpretations, tipping and insider trading can be severely punished under the antifraud provisions of the federal securities laws, whereas the status of issuer selective disclosure has been considerably less clear.
Regulation FD is also designed to address another threat to the integrity of our markets: the potential for corporate management to treat material information as a commodity to be used to gain or maintain favor with particular analysts or investors. As noted in the Proposing Release, in the absence of a prohibition on selective disclosure, analysts may feel pressured to report favorably about a company or otherwise slant their analysis in order to have continued access to selectively disclosed information. We are concerned, in this regard, with reports that analysts who publish negative views of an issuer are sometimes excluded by that issuer from calls and meetings to which other analysts are invited.
This changes the "game" (and we do mean game). Analytical contact with company managements between quarterly earnings dates and subsequent conference calls will be sparse. No more direction to the analytical community. No more managing earnings expectations through the outlet of so-called Street research. Many corporate managements are now spooked about talking to the Street without putting out a corresponding press release or filing an SEC 8K informational document. Street brokerage analysts will now have to adopt a tactic that will be a first in the new era period - actual investment research. Grassroots research. Talking to company suppliers. Talking to company customers. You know, dirty work like that. Don't expect miracles overnight. Most of the analysts that used to practice this ancient craft were fired long ago.
Getting back to the matter at hand, just what do you think a diminishment in overall corporate communication to the Street will mean to stock price volatility over the short run? As investors adjust to these new norms for behavior, we would surely expect volatility to increase. Especially around earnings season. No more gentle guiding from management's may mean that the world might possibly be full of surprises ahead. Revenue surprises. Earnings surprises. Perceptual surprises. On a brighter note, we do expect much of the corporate hype to settle down. In fact that should be just the opposite of what corporate communications efforts will shoot for. This one piece of pretty classy action from the SEC should make corporations think twice about hype as they contemplate not so pleasant classy actions of their own, legal classy actions that is. For a lot of modern day Street analysts, this pretty much FD'ed up the easy life, now didn't it?
Until we experience a shift or a change in the predominance of momentum thinking that characterizes the current stock market environment, expect volatility. Anticipate volatility. Possibly continued excessive volatility. |
