- The Washington Times - Friday, April 3, 2009


Over the past few days, I have been revisiting 2008. True, it has only been a few months since the close of the year, but here I am talking about revisiting 2008 as it pertains to industry thoughts, stock selection and ultimately those companies whose stock I bought - both good and bad. As all remember, 2008 was not a good year for stocks; in fact, it was a lousy year and 2009 has been off to a rough start, although the past few weeks have been far better than the first several.

For most, looking back at the past is not fun when faced with the prospects of admitting things you might have missed and perhaps should have seen. When reviewing stock selection and purchases, it’s all laid out for you - in dates, dollar amounts and percentages.

While it’s easy to pat yourself on the back when a stock purchase has gone well, it’s far more difficult to break down when a purchase has gone badly. Investments gone wrong really reflects two things to me - either I missed or misunderstood something in the analysis, or I was too impatient for some reason and data points that got me to buy the stock originally didn’t play out.

Of the two, the latter is the harder one to swallow because more often than not it translates into missed profits.

Holding the course can be painful, and while it is tempting to react during market turbulence, as investors we need to check and double-check the reason why we invested in a company’s stock as well as the confirming data points we have collected along the way. Make no mistake, investing in stocks is work. It can be fun and rewarding as well as nerve-racking and stressful, but either way it’s work.

In my mind, that review process is especially critical right now because next week kicks off what we in the industry call “earnings” - the four times every year when publicly traded companies report their financial results and their management teams varyingly describe the trends that affected their business that quarter. They also share their view on current trends and in some cases offer an outlook on the next few months and possibly give an outlook for the remainder of the calendar year. The down and dirty here is that most commentators quickly match up company revenues and earnings per share for the quarter versus analyst expectations to determine winners and losers for this round of corporate reporting.

With that said, we should be digging deeper than the headlines because there are more pieces of the puzzle to look at. There can be a few components to this reporting from a press release that includes financial data and commentary, plus a conference call with company management.

In some cases, in an effort to show greater transparency in the business, management may provide a supporting presentation for its conference call and related comments. These conference calls and supporting information can be found on company Web sites usually in the investor relations section. The quarterly conference calls are usually presented on a live webcast and tend to be archived as well. Aside from replaying those conference calls, the easiest ways to access what was discussed on the call is to find the transcripts. While there are several services that offer subscription services, Seeking Alpha (www.seekingalpha.com) does a good job and it’s free.

Identifying, listening to and understanding any one company-earnings report and conference call can be easy, but it can also be tricky. Some management teams are rather straightforward in their approach. For others, I find that context for their commentary can be insightful, as it helps me match what is being shared with what was previously disclosed. Comparing comments helps us to understand whether the industry, company business and management’s outlook is improving, staying the same or getting grimmer. Those subtle (and sometimes not so subtle) shifts in outlooks and operating prospects serve to corroborate all the other data points that we have been collecting between earnings.

Consider the following - at the end of 2008, NYSE had more than 3,800 domestically listed stocks and Nasdaq had about 3,200, per their respective Web sites, which happen to be excellent resources for investors. While a percentage of publicly traded companies have “funny” fiscal year-end numbers that do not conform to March, June, September and December results, the vast majority do. As such, corporate earnings can be a fast and furious time given the number of companies that share their results in what turns out to be a five- to six-week period on average.

Where the real work comes in is in catching all the commentary, cross-referencing and weighing what is being said by the various companies that directly or indirectly touch the basket of companies in which we have invested. At the heart of it all, we need to separate the wheat from the chaff as it pertains to our reasons for buying and owning a company’s stock.

While next week is a short trading week because of the Easter holiday, the fun begins Tuesday, when Alcoa reports its earnings. Historically it is among the earliest to do so and some see it as a bellwether for what is to come. Between now and then, be sure to keep your ears open and eyes peeled for company earnings preannouncements, both good and bad.

• Chris Versace is the founder and portfolio manager of Reston. He can be reached at cversace @washingtontimes.com. At the time of publication, Mr. Versace had no positions in the companies mentioned in his column, although positions may change at any time.

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