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TORONTO (GlobeinvestorGOLD) — The latest raft of scandals on Wall Street has left many investors feeling they can't trust anyone anymore.
Short of getting out of the stock market altogether, shareholders now need to be as skeptical as possible about the companies they invest in. One of the best ways to get a peek behind the corporate curtain is to listen to company conference calls.
Most companies hold a conference call each quarter to talk about earnings and bring investors and analysts up to date on the company's progress. If you can't listen live, the calls are usually available as repeats for several days and are also listed on companies' websites as a "webcast."
the past few years, it's become easier for investors to access these calls as companies bend over backwards to improve transparency. Earlier this year, for example, General Electric Co. responded to pressure for more openness and began holding conference calls on a quarterly basis for the first time.
Conference calls don't just benefit the company. For investors, they're "really one of the best ways to get some confidence about a company's numbers going forward," says David Picton, portfolio manager at Synergy Mutual Funds. While it's one thing
to read a company's balance sheet, the calls allow you to hear from both analysts and chief financial officers, Mr. Pickton said.
He's also quick to remind investors that these calls are carefully staged events. In fact, if you listen to a few of these calls you'll notice they all have roughly the same format. They're generally about an hour long, open with a statement from the chairman or CEO and are usually followed by a lengthy monologue by the CFO. You won't glean much from the overview by the CEO but the CFO will begin to fill in plenty of details. That's because the main purpose is to talk about the recent quarter's earnings.
juicy parts come after that when there is typically a question-and-answer session. You won't necessarily be able to participate in the Q&A, but for bigger companies there will be questions from analysts, fund managers and the media.
Because these calls are carefully managed, sometimes the best you'll get is a sense of the mood of executives and a closer look at earnings. Other times though, you'll get a better idea of the acquisition strategy or
whether there is any consolidation on the horizon.
You can also look out for whether the same issue has come up more than once, or more than one person has asked for a clarification. That could be an early warning sign of trouble down the road.
Remember though, analysts often have a close working relationship with companies so it's rare for them to be confrontational on a call. Still, an August Trizec Properties Inc. call demonstrates just how crucial it can be to
participate. Saloman Smith Barney analyst John Litt openly criticized Trizec Chairman Peter Munk. He accused Mr. Munk of putting his fortunes ahead of shareholders, especially when it came to structuring their tax losses. In this case, whether the accusations were founded or not didn't matter. Investors sent the share price down 10 per cent in the hours following the call.
You may never get a chance to meet company executives, but this is one of your best opportunities to hear, on the record, what management has to say about your investment.
Norm Barnett is a producer at Report on Business Television.