What good is a whisper number if everyone knows it?
Ever since momentum mutual funds co-opted the stock market after the 1990 low, we've been taught one rule: If a stock beats the estimated earnings numbers, it goes higher; if it misses, it goes lower.
When this rule became a truism known to even the stodgiest of mutual funds, the game changed. Not only did the company have to top the posted numbers, it had to best the whisper number, the so-called number the company secretly hoped to do to get everybody juiced about the stock through a round of estimate revisions upward.
When reporters got wind of the concept of the whisper number, then the hurdle became, not just the whisper number, but the highest whisper number on the street. This number was usually arrived at without the help or guidance of management, a rogue number if you will.
We all know that
blew out the numbers last night, including even the highest, non-endorsed whisper number. But I think that Dell's quarter may spell the end of this phase of whisper investing.
Here's why. The analysts, goaded by the press and their usually uninformed brokers into wanting to play in the big leagues, are no longer whispering the number. They are saying it out loud.
Everybody who met with Dell recently at
's tech conference came away with expectations that the 83 cent posted number would be beaten by a mile.
Funds invested in Dell would win as long as everyone kept the whisper number to themselves. When the company ultimately reported the great quarter its stock would spike as the street ratcheted up numbers off a much better than expected earnings report.
But one by one analysts began tipping their whisper numbers to the street. First 90 cents sounded feasible. Then 95 cents. By the time Dell was due to report, the whispered number was $1.00, a full 17 cents above the now ridiculed posted number. Thank God it did $1.01. A penny less and it might have gotten slaughtered!!!!
Of course the stock had moved up in tandem with the raising of the whisper number. Yesterday, with the whispers being shouted, only the most hardy would want to still be long Dell. The hurdle rate was so high that unless Michael Dell bought a million pentium pro Latitudes on the last day of the quarter, Dell couldn't possibly blow out the most aggressive "whisper" estimation.
In fact, many momentum guys sold in advance of a great quarter.
Hence the new game. Now that the whisperers are shouting, the game will turn from buying on the good news to selling in anticipation of the good news.
The actual earnings event will become more like the cliff in Rebel Without a Cause. The last guy out of the car before the number is announced wins and everybody else loses.
Now that's what I call investing.
Toronto Globe and Mail
business section. After the
New York Times
Biz Section this one takes the longest to read. It is chock full of great reporting on stocks and mutual funds. When I hear all around me that I have to get long the resource stocks, I put the
on top of the pile to read. It's feisty, well written and has a can't miss synopsis of the hot movers of the day both stock and mutuals. (Contrast its reporting on
's puff piece before the recent earnings blow-up.)
James Cramer is manager of a hedge fund and co-chairman of
His fund holds long positions in
. While he cannot provide investment advice or recommendations, he welcomes your feedback, emailed to