<THE DRIP PORTFOLIO>
'Tis the Earnings Season
Plus, Touchstone Friday
by Brian Graney (TMFPanic)
by Brian Graney (TMFPanic)
ALEXANDRIA, VA (April 16, 1999) -- It's been a busy week here at the Drip Port. The middle of April is always an active time for shareholders, probably one of the most active periods of the year. Annual reports are rolling in from companies, first quarter earnings announcements are being made, annual meetings are being held, and then there's that whole tax thing. That's a lot for shareholders to think about.
Rather than feeling swamped by the deluge of information, we enjoy sorting through the press releases and listening to the conference calls for new details about our holdings. While Fools should take care not to overdose on all of the new data that comes out during this period, a quarterly check-up of what is going on at our companies seems like a smart idea in our eyes. This does not have to take a great deal of time, but it's a useful and productive exercise, like changing a car's oil every 3,000 miles.
Jeff spent most of this week checking under the hood of Intel Corp. (Nasdaq: INTC), making sure everything was in order after our oldest holding reported its first quarter results. Other Intel owners might want to set aside a few minutes this weekend for poking around the company's engine compartment as well. This does not have to be a long, drawn-out process. In fact, keeping this and other quarterly check-ups simple and straightforward prevents the over-analysis and short-term second-guessing that can occur when a lot of new information is released at once. Taken to its extreme (if illogical) end, that type of analytical burnout can potentially destroy long-term returns by prompting an otherwise ill-advised decision to sell.
Building and updating a spreadsheet from the quarterly financial numbers a company reports is often helpful in locating business trends that the company may not have commented on during its official communications with shareholders. It can also show how the business reacts to changing industry and economic conditions. To learn more about what all of the numbers on the balance sheet and income and cash flow statements are telling you, head over to the Fool's School for some basic financial analysis education.
When building a spreadsheet, stick to the things that you admired about the company when you first became a shareholder and add new categories as you discover elements that you find are helpful in charting the company's progress. Then, try to make your own educated estimates of what will happen next quarter, using the information that is available to you. Not guesses, but real estimates with some underlying basis.
This can be hard to do for companies that don't offer investors a whole lot in the way of guidance about future results. On the other hand, Intel provides a great deal of insight into what it sees happening in the months to come through its earnings press release on its website, which also contains a link to a recording of this week's conference call with management.
(Note: This is not an outright condemnation of companies that instead of offering regular guidance prefer to keep their mouths' shut to everyone. This practice is commendable as it levels the playing field for professional analysts and individual investors alike, since no one gets any special treatment. I highly recommend reading the informative "Heard on the Street" column in today's Wall Street Journal, which happens to profile one such company with a no-guidance policy. The Journal's website is not free, so go to your local public library to get a copy.)
Once the next quarter's results come in, you can then compare your expectations with the company's actual figures and see how you did. This is not only fun in a crystal ball-gazing kind of way, but useful in learning more about the nuts and bolts of how the business works and how it actually makes money for itself and for its shareholders.
If number crunching tends to turn your mind to Jell-O, then perform some undercover research of your own to find out how well your company is doing. You don't have to break into company headquarters to find out what business is like at your favorite firm. Instead, use the resources that are available to you.
In the case of Intel, stop in at a PC retailer if you happen to be at the mall this weekend and ask a manager how business is going. Ask questions such as, "How are the new Pentium III-based PCs selling?" or "What have customers been saying?" I'm often surprised how willingly and candidly retailers will talk about these things if asked politely. I typically listen to and show interest in the standard sales pitch, even if I don't plan on buying anything in the first place. Then I hit the poor salesperson up for some useful scuttlebutt.
Rely on and improve upon you own abilities as a business analyst during quarterly reporting season, and push the latest hullabaloo from the talking head on TV or the stock tipster at the barbershop to the back burner, if not off the stove altogether. Jeff and I strongly believe that being a business analyst goes hand-in-hand with being an investor. The two cannot be separated in our minds; to be one suggests that you are also the other. Keep that in mind during this and future earnings reporting periods.
Touchstone Friday: Our busy week started off with a mini-duel from our friend George about the pluses and minuses of boxmakers Compaq (NYSE: CPQ) and Dell (Nasdaq: DELL) on Monday. While Dell doesn't offer direct investing plans right now, it may at some point in the future. Perhaps of more relevance, those considering an investment in the PC area can always use some information about the different competitors in the sector before coming to an investment decision.
The rest of the week was devoted to Intel's first quarter earnings report and the accompanying market fallout as seen through Jeff's curious and often bloodshot eyes. Jeff provided a substantial overview of the report itself on Tuesday, followed Wednesday by a dynamic example of what the tax ramifications would be if we followed one analyst's recommendation and sold our Intel position. I say dynamic because a math error in Jeff's calculations (or so he claims, ducking blame like a seasoned prize fighter or a slick politician) prompted a slight revision of those thoughts on Thursday. Still, the lesson of taking taxes into account before selling remains the same and it is well worth learning.
Next week, we will tackle the first quarter results of holding Johnson & Johnson (NYSE: JNJ). We are breaking out new calculators especially for the occasion, so we hope that you will join us here and on the Drip Companies message board.
Call Your Boss a Fool.
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