WHEN TO RE-DO THE BIG 5 NUMBERS
When should you re-calculate the numbers... and when should you decide that your Wonderful Business has become Un-wonderful?
Every business that has stock in the public markets is required by
the SEC laws to file a quarterly report. The quarterly report
filing with the SEC is called the 10-Q... Q for Quarter. The
annual filing is called the 10K. K for... whatever...
Kilo. Oh. There's the old guiding days sneaking back in.
The 10Q's come out at various times because not all businesses are
on a calendar year. However, a lot of them are, which means that
the end of the year is December 31 and the end of the first quarter is
Mar 31.
The numbers, however, do not come out on March 32. The accountants have to get all the numbers and do an audit and certify them and then get the CEO to sign off that the numbers are real, and all that takes some time. The 10Q's come out a few weeks after the end of the quarter.
The numbers, however, do not come out on March 32. The accountants have to get all the numbers and do an audit and certify them and then get the CEO to sign off that the numbers are real, and all that takes some time. The 10Q's come out a few weeks after the end of the quarter.
When the 10Q comes out publicly, the data collection companies get copies of the report, then load those numbers into their databases for uploading to the various businesses that provide the data to the industry and public. Some of the sites, like MSN Money and Yahoo, are free and provide a limited set of data. Others like Investools charge for the data and typically provide more data in a more easily managed format.
The key thing to note is that each quarter, you get a little look
at how things are going for your business. You can see if they
exceeded the expectations of analysts or if they did not.
And you can, at that point, recalculate the Big Five (or just look them up on some sites).
If you see that the Big Five are suddenly inconsistent with the past (one or all), it is time to ask yourself a question: Do you know what the problem is?
Likely, if you are like me, you do not know. Also likely, if you are like me, that you got three red arrows before you ever saw the report in the first place, and you are now in cash.
The reason for that likelihood is that the institutional investors believe that the only way they can make money on a stock is to have information that none of the other institutional investors have. For that reason, key people in corporations are courted like royalty. They get dined and wined and taken to the Superbowl. And in exchange for this personal relationship, the institutional manager hopes to get wind of something -- good or bad -- before any of his peers.
Seldom happens. Most of his peers are as up on whatever is going down as the next guy. And that is why, two weeks before Meg Whitman announced that EBAY was NOT going to grow as fast as everyone was expecting, that the stock had sideways price and two red arrows. And all of us red arrow followers were out. And then she announced. And the stock dropped 30% almost overnight.
And you can, at that point, recalculate the Big Five (or just look them up on some sites).
If you see that the Big Five are suddenly inconsistent with the past (one or all), it is time to ask yourself a question: Do you know what the problem is?
Likely, if you are like me, you do not know. Also likely, if you are like me, that you got three red arrows before you ever saw the report in the first place, and you are now in cash.
The reason for that likelihood is that the institutional investors believe that the only way they can make money on a stock is to have information that none of the other institutional investors have. For that reason, key people in corporations are courted like royalty. They get dined and wined and taken to the Superbowl. And in exchange for this personal relationship, the institutional manager hopes to get wind of something -- good or bad -- before any of his peers.
Seldom happens. Most of his peers are as up on whatever is going down as the next guy. And that is why, two weeks before Meg Whitman announced that EBAY was NOT going to grow as fast as everyone was expecting, that the stock had sideways price and two red arrows. And all of us red arrow followers were out. And then she announced. And the stock dropped 30% almost overnight.
So two things. Watch quarterly for the numbers. Act as
if this is your only business. If the numbers change suddenly and
you don't know why, don't go back in until you do know why.
How do you find out why?
Listen in on the next analyst phone call. They post them on the website of most good businesses so you can do just that even if you weren't available that day. Listen to the call. The analysts will ask all the hard questions. Listen to the answers.
Sometimes it's a good answer that makes good sense. Sometimes they are dancing. The difference isn't all that subtle. After Apollo Group's CEO suddenly quit, an analyst asked what happened. Something all of us wanted to know. The acting CEO said "Read the SEC filing." That was real subtle. Time to say bye-bye to APOL until the dust settles and the real story comes out.
Listen in on the next analyst phone call. They post them on the website of most good businesses so you can do just that even if you weren't available that day. Listen to the call. The analysts will ask all the hard questions. Listen to the answers.
Sometimes it's a good answer that makes good sense. Sometimes they are dancing. The difference isn't all that subtle. After Apollo Group's CEO suddenly quit, an analyst asked what happened. Something all of us wanted to know. The acting CEO said "Read the SEC filing." That was real subtle. Time to say bye-bye to APOL until the dust settles and the real story comes out.
Now go play.
Phil
Phil
