This thread is on a roll. Pages 44 and 45 of the July 1988 issue of Money magazine focused on whisper numbers, paying particular attention to Dell's previous quarter.
Pat, you're a star in your own right. Can we call you the Dell whisperer?
Why Web whispers are worth knowing --
The private earnings forecasts that Wall Street quietly passes on to top clients seem to be reaching investors who chat on the Internet.
Three weeks before Dell Computer announced its first-quarter earnings in mid-May, the denizens of the Silicon Investor message board devoted to the world's second largest computermaker began trying to figure out the answer to an all-important question: "What are the whisper numbers?"
By now, you've probably heard about whispers. They are Wall Street's unofficial estimate for closely watched, primarily high-tech companies. The whisper is important because it reflects the Streets true expectations for a company -- and failure to meet a whisper can send a stock reeling. Alas, few of us ever get to hear an actual whisper, since analysts tend to share them only with their peers and their firm's top clients. So how do you get in on the secret? Try the Internet.
In the weeks before Dell's earnings announcement, the discussion board on Silicon Investor -- one of the most active investment communities on the Web -- was littered with messages by posters who claimed to have learned what the Street was whispering. The numbers ranged from the realistic (44 cents a share, 2 cents more than the First Call consensus estimate) to the absurd (75c). Eventually, the discussion group agreed the whisper making its way around must be 45c, says Patrick McDaniel, an investor in Cheyenne, Wyo. Who tracked the back-and-forth. And that turned out to be pretty much on target. After the market closed on May 19, Dell announced that it earned 44c per share -- 2c more than the First Call number but a penny below the group's consensus of the whisper. Sure enough, over the next three days, Dell's stock fell almost $9 to $85.50 a share. It closed May 27 at $86.
A just-released study suggests that such a prescience by online investment groups isn't unusual. Three professors -- from Purdue, Indiana University and the University of Michigan -- looked at reports of whisper numbers found mainly on Internet sites such as Motley Fool, Yahoo! Finance and Silicon Investor from January 1995 to May 1997. They collected 943 whispers on 127 companies and compared them with 3,546 analyst forecasts for the same firms. They found that while the while the First Call numbers were, on average, 6.1 cents too low per $1 in earnings, the whispers were a bit more accurate, at 4.9c too high. And since the authors counted all whispers -- even outrageous ones like the 75c Dell figure -- the numbers that the discussion groups settled on were more accurate than the average shows.
Perhaps more important, the authors also concluded that Internet whisper numbers were better gauges of Wall Street expectations than First Call estimates. They calculated what their gains would have been had they bought shares of companies that beat their whispers and sold shares in companies that missed them. In their study, a stock was "bought" or "sold' on the day of its earnings announcement, and the position was closed out the next day. This strategy yielded 3.1% above the overall market's performance. A similar strategy based on First Call numbers would have produced only 1.1% more than the market return. Such results come as no surprise to Richard Green, president of Briefing.com, a market analysis Website. "The Internet," he says, "is proving to be an efficient method of actually distributing the true expectations of the marketplace.'
How can the rumor mongering on the Web yield good data? After all, people can post anything they want on the Internet, true or not. And what are the chances that the masses who forage the Web have access to the same information that high-net-worth investors get from their brokers?
One of the study's authors, Michigan's Mark Bagnoli, has a few guesses as to how good whispers find their way onto the Net. Some investors are in fact posting opinions they receive from their brokers. Others are repeating what they hear on CNBC or read in a newspaper. Others may be making educated guesses or using contacts at a company. In the end, the groups seem able to throw out obviously incorrect numbers and come to a sense of the whisper.
Now, we are not recommending you trade on Internet whispers. The study's results are an average of hypothetical trades in 127 companies. Individuals can't spread risk that widely, says John Markese, president of the American Association of Individual Investors. Plus, he notes, on the Web, "you can short a stock and yell fire if you like."
So what good is knowing an Internet whisper? If you're thinking of buying or selling a stock, you may be able to get a better sense of whether it is about to spike up or down based on the whispers. If you own a stock for the long term, you'll understand why your portfolio is gyrating. Scouring online chats where the numbers are discussed can also be useful in another way. Investors who post on these boards often excerpt news stories and analyst reports. Bad data is mixed with the good, but investors tend to jump in to correct a discussion thread when a post is way off the mark, so the chat boards can be decent information clearinghouses.
If you decide to surf the Web for whispers, here's some advice: 1) You'll get the most reliable leads on large companies with active discussion groups. The busier a site, the more investors there are to correct bad information. And 2) if you see a whisper figure, ask the person who posted it how he or she got it. If you get no response, ignore the number. |
