Posts filed under “Analysts”
OK, kids, listen up: There ain’t no such thing as NFP whisper numbers.
This oddity seems to come up now and again by the usual tin foil hat types. Let’s explain what a whisper number actually is, and why an Employment whisper # is nonsense.
Back in the bad old days before Reg FD and Sarbanes-Oxeley, there were several numbers that investors had to pay attention to when it came to quarterly earnings:
1. Official Guidance: The first was the company’s official guidance. It was given a quarter in advance, typically at the prior quarters conference call. It tended to be very conservative, and was therefore easy to beat.
2. Analyst Consensus: The second number was the analyst consensus estimates for the quarter. Take all of the analysts who officially covered that name, take the average, and you get the consensus estimate.
3. Whisper Number: The third number was the “whisper” number. The CEO, or more often, the CFO or head of Investor Relations would pull aside a favored analyst or two, typically from the biggest iBanks.They would, sotte vocce, whisper wast the actual earnings number was going to be privately.
Yes, this was material non public information. Yes, it was in all probability illegal. And yes, it was extremely profitable very all involved. The analyst generated some commissions, by revealing it to favored (read large commission paying) clients — typically, hedge funds. That “First Call” went to the firms that spread the most love around the Street. And the company got a nice pop when the earnings beat the artificially low guidance and consensus.
Now, apply this process to NFP report.
Who has access to this info before Friday at 8:30 am? The BLS, the White House, and the Fed the days before, and the sequestered reporters at BLS the hour prior to its release. Yet the supposed whisper number circulates before event he Fed has access to it.
Who profits from whispering it? Why would anyone take the career risk of sharing this heavily revised and often meaningless single data point?
Last week, I actually heard someone declare: “Sure, 192k isn’t terrible, but its far below the 250k whisper number for NFP.”
These people are not only money losers, but a fools. Steer clear of them . . .
We have decided to change our stock ranking to reflect current sensibilities more closely. Rankings formerly known as “Buy” “Neutral” “Sell” and “Sell Short” have been given more descriptive terms. Buy is now WINNING, Neutral has been changed to GODDESSES, Sell is TURD and Sell Short is AT WAR. Also please be aware that our…Read More
Tim du Toit is the editor and founder of Eurosharelab. He has more than 20 year of institutional and personal investing experience in emerging and developed markets. He previously published the terrific James Montier Resource page. Tim is based in Hamburg,. Germany. More of his articles can be found at Eurosharelab (www.eurosharelab.com).
Republished here with permission.
I have been an avid reader of Michael Mauboussin’s research since about 2004 when he started working for Legg-Mason.
If you want to learn what successful investing is really about, along with the research to back it up you cannot do better than read Michael’s work.
I have unfortunately not had the pleasure of meeting Michael but it is something I would really like to do.
To get to know his work I have put together this resource page, a listing of all Michael’s articles I could find on the internet along with a short description.
First something on Michael’s background.
Michael Mauboussin Bio
Michael Jacques Mauboussin is the Chief Investment Strategist at Legg-Mason Capital Management Inc. He joined the firm in 2004.
He is also Chief Investment Strategist and Senior Vice President at Legg Mason Funds Management Inc.
Prior to joining Legg-Mason he was a Managing Director and Chief U.S. Investment Strategist at Credit Suisse First Boston (CSFB). He joined CSFB in 1992 as a packaged food industry Analyst.
Michael is the former President of the Consumer Analyst Group of New York and was repeatedly named to Institutional Investor’s All-America Research Team and the Wall Street Journal All-Star survey in the food industry group.
His latest book, Think Twice: Harnessing the Power of Counter intuition was published in the fall of 2009.
He has also written “More Than You Know: Finding Financial Wisdom in Unconventional Places” and was co-author of “Expectations Investing: Reading Stock Prices for Better Returns”.
He has also been an Adjunct Professor of Finance at the Columbia Business School since 1993.
Business Week’s Guide to the Best Business Schools (2001) highlighted Michael Mauboussin as one of the school’s “Outstanding Faculty,” a distinction received by only seven professors.
In 2004, SmartMoney magazine named him as one of its Power 30, a list of “the most influential people on Wall Street”.
Mr. Mauboussin is on the Board of Trustees at the Santa Fe Institute. He holds a B.A. in Government from the Georgetown University.
Now on to Michael’s research
In the article, “The Real Role of Dividends in Building Wealth” dated January 25, 2011, Michael Mauboussin argues that for dividends to be included as a source in accumulating capital, the investor must reinvest dividends. Research has shown that this is unfortunately not the case with the majority of private investors.
In this January 12, 2011 article called “Blaming the Rat” Michael Mauboussin talks about the relationship between incentives and behaviour.
Social scientists often assume that poor behaviour is a result of faulty incentives and that good behaviour reflects well-structured incentives.
Ironically, management literature shows that the relationship between incentives and behaviour is more complex that what these scientists originally thought. In most cases, drive and mindset are more important than the incentive program.
For investors, the objective is to find driven leaders who have good capital allocation skills and have a substantial stake in the company. A good example is Warren Buffett who receives a relatively modest compensation as CEO. Since nearly all of his net worth is invested in Berkshire Hathaway, he has the motivation and incentive to perform well.
In the July 15, 2010 article called, “Untangling Skill and Luck” Michael Mauboussin provides framework on how to differentiate between skill and luck. One of the most difficult things a fund investor has to do. And something you have to test your own performance against all the time. Was the return you generated based on luck or was it skill?
In this article, Michael Mauboussin discusses what comprises a good investment process – finding gaps between expectations and fundamentals and gives guidelines as to the correct sizing of investments.
In a presentation at the CFO Executive Summit titled “It’s all about Managing for Value” dated June 11, 2010, Michael Mauboussin discusses that the primary goal of a corporation is to maximize its long-term shareholder value.
In corporate strategy, the litmus test is whether the strategy will ultimately increase shareholder value.
In this article on “The Colonel Blotto Game” dated May 12, 2010 Michael Mauboussin draws lessons from the Colonel Blotto game on how to compete when you are the underdog.
For a company with fewer resources than its competitor, the best strategy is to compete in a non-traditional way in order to expand the number of battlefields thus changing the basis of competition.
Another lesson from the game is that the “best” team does not necessarily win the game. The winner is usually the one who has effectively played to its strengths and weaknesses.
In “A Surge in the Urge to Merge” Michael Mauboussin writes in January 12, 2010 that a Mergers and Acquisitions (M&A) wave is currently brewing.
While research shows that company making acquisitions in the early part of the cycle deliver the best returns the focus of any investor in evaluating M&A deals is whether the acquiring company adds shareholder value from the acquisition. In economic terms (do the synergies exceed the premium paid) not just looking at accounting based measures.
Invictus here. I have been reviewing a variety of assorted miscellaneous items: Likely flat-earther/creationist Peter Wallison continues to believe that if he blames Fannie, Freddie, and CRA enough times, eventually it will be true that they — and they alone — were the sole causes of the financial crisis. His inability to back down in…Read More
Get your geek on: We study a model where investment decisions are based on investors’ information about the unknown and endogenous return of the investment. The information of investors consists of endogenously determined messages sold by financial analysts who have access to both public and private information on the return of the investment. We assume…Read More
One of the knocks on last year’s earnings was that it was cost cutting was driving profitibility — not organic revenue growth. The recovery could not turn into an expansion, we were told, without solid revenue gains. Earnings may have surpassed Wall Street expectations for seven straight quarters, but sales have trailed forecasts since 2008….Read More
In Friday’s reading, I mentioned Michael Lewis’s piece in Vanity Fair: When Irish Eyes Are Crying. It is your must read of the weekend. The problems in Ireland makes the woes in Greece look merely like a bounced check. And Ireland’s eejit politicians, FOLLOWING THE ADVICE OF MERRILL LYNCH, turned the entire population of the…Read More
“Fundamental Analysts: You don’t need them in a Bull market, and you don’t want them in a Bear market.” > I started out in this business on a trading desk. The head of trading who trained me was a crusty no bullshit former Marine Jungle Combat Instructor. He was not keen on Fundamental Analysts, and…Read More
It appears that the web editors at the AEI have been busy. Peter Wallison, currently a member of the Financial Crisis Inquiry Commission, was also the co-director of AEI’s Financial Deregulation Project, along with his co-director, Columbia professor Charles Calomoris. Over at Calomoris’s bio, his status as co-director of AEI’s Financial Deregulation Project is the…Read More