The Whisper On Wall Street

banker xSometimes, actually quite often, stocks act irrationally on Wall Street. The notion of a ration approach to picking stocks has been disproven over an over again whether through illegal inside information, select calls to analysts, channel checks of merchandise revealed to those “in the know” or out and out fraud.

One of the most perplexing notions is that of stocks trading based on how their earnings come out. Twenty or thirty years ago an investor could be pretty sure that the stock he owned would go up or go down based on how well the underlying business performed. It would report earnings and if those earnings grew at the rate that the analysts were expecting as revealed in published research reports and from organizations like ValueLine or S&P, the shares would go higher. If not, the shares would move down. Mr. and Mrs. America planned their entire retirement and savings plan around these predictable events.

One day that all changed. It occurred in the late 1990s when the market went crazy with Internet stocks. These stocks had no earnings to speak of so all sorts of different metrics were introduced. Things like website hits, advertiser deals, click throughs; subscriber growth and churn were more frequently found in reports.

As investors these numbers meant very little since they were difficult to translate into actual earnings. But, in one community, it was the beginning of the development of a new lingua franca – a language that bridged what was commonly used and that which was understood only by a specialized group.

This new lingua franca also contained a very new phrase, called the whisper number. This number would turn out to be the most important number and phrase uttered. It made the difference between a stock moving higher and one decimating your net worth. No longer were the numbers the “street” was expecting really important or valid. That number was for the “retail” investor – you and I. It was a number you could find anywhere on the Internet if you did a quick search of a company’s symbol. In other words there was nothing secret about an already published earnings number…nothing to give Wall Street traders the edge.

New regulations forbade public companies from sharing non-public or selected information with their favorite analysts. The regulation, FD for Full Disclosure, would punish companies who did not disclose information to everyone at the same time.

The way around this was for the analyst community to collude based using an inside language. The term they would come up with was “whisper number”, a number they thought the company should report for sales, earnings, subscriber growth, inventory or whatever other metric they wanted to use. That brokerage research houses collect whisper number from the consensus estimates of not just the investment banking firms but also from institutional investor expectations and those of individual investors. This is done through lots of research looking at everything from company forecasts to information freely circulating on the Internet chat rooms and various specialty websites like those that follow certain industries exclusively. The number is tallied and if the company hits the “whisper number” the shares fly even if that number is lower than the “street” expected.

It’s impossible to track down this number as the firms on the inside are loath to reveal their own sources, but magically the ones that can influence shares prices seem to know it after an earnings release. There is one source, however, that has managed to find something close to the whisper number and if you’re willing to pay for it, you can get access to it as well. It’s a site called theflyonthewall.com. Now, since it is a site that anyone can gain access to with a subscription you would think the information was too common to really be good. However when you consider how many people invest versus how many people are willing to sift through the mountains of information on the site, you can understand why there is an edge to knowing just a little more. It offers better insight than the “official numbers” and can give you edge that can be the difference between losing a ton of money and making a ton of money.

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