Whisper Numbers?

During earnings season - the time when companies publicly report their results from the last quarter - many whisper numbers canbe heard floating around Wall Street and on the internet. It can be a period of extreme stock market volatility; the companies that don't meet earnings estimates are usually hammered hard and experience a decline in share price. However, even companies that meet earnings estimates can suffer if they don't match the seemingly mysterious whisper number. What are whisper numbers? Where do they come from? And what do they mean to you as an investor?

While the consensus estimate tends to be widely available, whispers are the unofficial and unpublished earnings-per-share (EPS) forecasts that circulate among employees, professionals and other investors on Wall Street. Traditionally, they were meant for the wealthy clients of top brokerages, but with the advent of the internet, whispers have become much less of a secret and many websites now supply them to individual investors. Because differences between actual earnings results and consensus estimates can have significant effects on a stock’s price, whisper numbers can be useful when they differ from the consensus forecast.

If you do decide to invest based on a whisper, keep in mind that whisper numbers are essentially just rumors. Sometimes a whisper number ends up being more accurate than a consensus estimate, but the odds that a whisper number will lead to a successful investment is probably not much greater than if you had chosen the number at random. And if you are a long-term investor, it is especially important to keep whisper numbers in perspective. So if you hear a whisper number that gives you pause, just remember that using it to guide your investment decisions is a risk, even if there is the potential to benefit.