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To: The Vinman who wrote (58871)	6/26/1998 6:33:00 PM
From: Jeff Fox	Respond to of 186894

Vin, re:"go to your local computer store since you won't believe me and ask" I went to my local computer store and asked them which chip is faster, the k5 or the PentiumII - 400 (I already know the answer to that one.) Jeff

To: The Vinman who wrote (58871)	6/27/1998 10:11:00 AM
From: Scarecrow	Respond to of 186894

Do you ever watch CNBC? Uh... Yeah. Are you telling me that CNBC(!!) is your great and wise source for analysts? Ever see them interview Chuch Hill of First Call? Can't say as I have. But have you ever seen Chuck Hill? A few weeks back, Reginald Middleton posted what I consider to be an excellent definition of the problem with earnings estimates. Message 4729721 It is lengthy, so I'll summarize the key points of the article he posted: The Big Problem But the most damning problem with the surveys is that Wall Street analysts simply do not try to accurately forecast earnings. Simply put, Wall Street plays a game with earnings estimates. It serves no one's interest when a company misses. It is much better to have earnings come in at, or above, the published the "consensus." Wall Street has learned to bias the surveys so that companies are likely to beat estimates. To my mind, that means NOT being optimistic at all. It means being pessimistic to ensure a "surprise." Here's the proof. Everyone Beats the Consensus If analysts were paid based on how close their forecasts were to actual quarterly numbers, they would try to come as close as possible, and be as likely to be above the actual figure as below. Best efforts forecasting would create something like a bell curve distribution of actual data around consensus estimates. In fact, every quarter, the number of firms beating estimates is about twice as high as than the number that come in below estimates. This indicates bias in the data. For example, in the first quarter of this year, almost 55% of companies reported earnings above expectations, while only 27% reported below (the rest were as expected). These figures are close to what was reported in the second and third quarters of 1997 and have become the norm for reporting seasons: twice as many come in a "penny ahead" or more, compared to those that miss. Here is a clincher. On April 22, Computer Associates said that profits for the current quarter would reach $0.75 per share. Yet, when CA reported earnings on May 19 (plenty of time to update those estimates) at, of all things, $0.75, the consensus estimate was only $0.74. The press duly reported that Computer Associates reported earnings "a penny ahead" of expectations! And analysts get paid to make these forecasts. Whisper Numbers The bias in the consensus numbers is becoming increasingly recognized. In fact, it has now come to be expected that companies will beat expectations. This of course undermines the supposed value of the surveys, but with a measurable bias, this is how a rational market reacts. As a result, it is becoming increasingly common for a stock price not to react positively when earnings come in "above expectations." This is further evidence that the consensus numbers do not in fact accurately reflect what is built into the price structure In fact, for many stocks, it is now expected that earnings will come in well above expectations. When a company consistently beats the consensus estimates, which many do (won't those Wall Street analysts ever learn?),the talk as to what is really expected starts up. This creates the so-called "whisper numbers." Don't Blame the Whispers This is not the fault of the whisper numbers. In fact, so called whisper numbers are rational expectations being built into prices. (Forget the silly rumors that also fly around, most traders don't buy into them and they aren't whisper numbers and don't affect prices). When the supposed consensus expectations show a consistent bias, rational traders will come to expect that bias. It is becoming ever more important to understand the bias in these consensus numbers, and to have a feel for what the market is really expected. Don't get caught thinking that just because a company reports earnings above the First Call estimates, that it means the company must be doing well, or that the market has to react positively to the report. Unless the method of collected the consensus changes, "beating estimates" will increasingly have less impact on stock prices. Now, as for your contention It is COMMON knowledge that ANALysts tend to be more optimistic the farther out they go. Look at the estimates for the S&P this year... I would say this this "knowledge" is hardly "common." Second, I thought we were talking about individual equities estimates, not indexes. And third, if you do want to talk about indexes, it seems to me that virtually every estimate I saw in January of stock index performance was extremely pessimistic, predicting flat or negative growth for stocks in 1998... Where was the optimism then?? Regarding AMD giving away crap, go to your local computer store since you won't believe me and ask them which chip is faster, the K6 or the pentium(I already know the answer to that one.) Thanks to Jeff Fox for pointing out one ludicrous aspect of that comment. My response: Hmm. You still don't want to touch that Profitability part, do you? As my buddies and I used to say "Hey, we're losing a few pennies on each unit, but WE'LL MAKE IT UP IN VOLUME!!" Get a clue and learn how the street works..... Vinman, heal thyself!