If there was ever a time for the individual investor to feel as though the stock market is an insider’s game, this is it. Some investors, though, find confidence if they can at least get within earshot of the conversations of corporate executives.
Quarterly conference calls have been a staple on Wall Street as a way for analysts who follow a particular company to question a firm’s top management about the company’s financial performance and outlook.
A few years ago, some analysts and investment managers complained that some corporations were favoring certain analysts and shutting out others. In response, the Securities and Exchange Commission issued a “fair disclosure” regulation in 2000 requiring that all information a corporation releases be available to all investors.
As a result, most companies now broadcast their conference calls on the Internet. The conference calls are usually conducted shortly after the company releases its quarterly earnings report.
Through various Web sites, anyone can tune into the calls live or hear rebroadcasts of them later.
Of course, investors can also ferret out some of the information that comes out of the calls in the business press.
“Reading [about information] is fine. Investors don’t necessarily have to listen to the broadcast, but they do have to follow these things somehow,” says John Markese, president of the Chicago-based American Association of Individual Investors.
But by listening in, “investors can learn about what companies are doing from the mouths of the executives,” explains Rob Adler, president and co-founder of the Boston firm CCBN, which runs www.companyboardroom.com, a Web site that broadcasts calls. “Conference calls are conducted right after the financial results news release, but they cover much more detail in a call.”
Adds J. Randall Woolridge, a professor of finance at Penn State University: “Analysts are going to dig in with questions about individual business units. If for instance, a unit has been a star performer for years and then suddenly the growth rate of the unit is down, the analysts are going to be asking why.”
Chicago resident Ken Dennis holds pharmaceutical stocks in his 401(k) account and has tuned into live conference calls on occasion, sometimes buying or selling a stock immediately after the call.
“I like the calls for information about drugs in the pipeline and what’s going on with clinical trials,” he said. “Sometimes, the conference focuses on what is generally considered bad news, but I might like the tone of what I hear.”
Even though he tries to discern what he can from listening in, Dennis, who is a certified public accountant, says he’s skeptical of management’s pronouncements on earnings and other outlooks, especially now that there have been so many scandals. “How much of what they are telling us is a lie?” he asks.
“Right now, quarterly financial reports are not audited,” says Woolridge. “Management is not liable for the report, but maybe they will be if regulations change.”
Moreover, many of the answers management delivers during the calls are scripted, says Woolridge. “They are very well prepped for these calls.”
Most conference calls start with an initial briefing followed by a question-and-answer session with an analyst.
It’s during this segment that an investor with a good ear for gleaning information from a pregnant pause or stumbling response can draw an extra inference about management’s real ability.
“There is nothing like hearing someone talk about their business,” says Adler. “Most professional money managers get to meet the CEO. This is the closest an individual can come.”
“I would look for definitive answers,” says Woolridge. “If they stall or can’t give a definitive answer, that’s a warning.”
Investors who closely track the ups and downs of their holdings may also find that tuning into a live call provides a heads-up to possible movements in a stock.
“The individual has the same access as the institutional investor to any material information that might move the stock up or down,” says Patrick Galleher of www.vcall com, another Web site that broadcasts calls.
Not much stock movement
Since earnings are released before the conference calls, however, movement in the stock may have already occurred before the call, notes Len Rosenthal, a professor of finance at Bentley College in Waltham, Mass.
“I am not aware of any studies that show any systematic movement one way or another after conference calls,” he says. “But I suspect that if there is any significant additional information that is disclosed beyond the earnings released, that the stock will move.”
About 50 percent of the listeners at Vcall are individuals and about 50 percent are institutional money managers, says Galleher. Of the individuals, “Many are high net-worth investors,” he says. “And about 20 percent of the individuals are retired, spending a lot of time running their portfolios.”
Indeed, it’s difficult to carve out an hour or more from a busy work day to tune into a live conference call, says Chicago resident Thomas Bartkoski.
“I usually listen later,” he says. “That’s practical in a couple of ways, because I can wind through some of the topics I’m not interested in and fast-forward to others. I am like a lot of people in that I have an interest in what makes a company tick, but I am not interested in some of the arcane things.”
In fact, the subjects discussed during the calls are likely to be completely unintelligible to anyone who doesn’t follow the business news pretty closely. For instance, in a recent call conducted by Qwest Communications Inc., many questions centered on what specific assets the company might be able to sell to help ease its cash problems.
For many individuals, investing is a constant educational process, concludes Markese. Listening to calls “will make you understand investing better. You will educate yourself as to what are the issues in investing and accounting.”
Where to `tune in’
The Internet is littered with sites providing company conference calls. Here are three that are good starting places for investors:
– www.companyboardroom.com. This site offers live Webcasts and online replays of thousands of companies. An event calendar on the site is also helpful for tracking earnings releases and conference calls.
– www.FDfn.com. This site, formally known as the Fair Disclosure Financial Network, offers Webcasts for some 4,500 companies, and also sends content to other financial sites, such as Bloomberg.com’s Earnings Center, says site vice president Kevin Gass.
– www.vcall.com. This site carries about 1,000 calls a month, says spokesman Patrick Galleher. “We also do shareholder meetings and other investor events.”
