No Guidance is Better Than Bad Guidance (Bespoke)

Wednesday, July 27th, 2011

by Bespoke Investment Group

When a company releases quarterly earnings figures, any guidance that is issued is analyzed just as closely as the EPS and revenue numbers.  But companies aren’t required to issue guidance, and it’s interesting to track the percentage of companies that do so each earnings season.  We can think of two obvious reasons why a company wouldn’t issue guidance  — 1) if there is simply too much uncertainty about the business environment and 2) if expectations are poor and the company wants to wait it out to see if it can turn things around before its next release.

Below we highlight the percentage of companies that have issued no guidance on a quarterly basis since 2002.  As shown, when the market was in bull market mode during the mid-2000s, a lot of times less than 50% of companies would issue no guidance.  When the financial crisis began in late 2007, the percentage began to steadily increase each quarter until it peaked in the same quarter that the market bottomed in Q1 ’09.  As the current bull market has progressed, more and more companies have begun to issue guidance, but this earnings season we have seen a huge spike in companies that haven’t issued any guidance once again.  Since earnings season began on July 11th, 412 companies have released numbers, and 65.8% of them haven’t issued any guidance.  This is actually .2% above the peak reading of 65.6% seen at the depths of the financial crisis.  For those looking for proof that uncertainty abounds in the business world right now, there you have it.

Copyright © Bespoke Investment Group

Tags: Business Environment, Business World, Copyright, Earnings Season, Eps, Financial Crisis, Guidance, Investment Group, Proof, Quarterly Basis, Quarterly Earnings, Revenue Numbers, Spike, Uncertainty
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Raymond James, Commonwealth to Give Financial Advisors Free Reign on Social Media

Thursday, May 5th, 2011

by Trader Mark, Fund My Mutual Fund

I am, for very obvious reasons, watching the push and pull between regulators and the financial community in regards to social media very closely.  The regulatory framework is essentially something from the 1980s, whereas the real world has sprinted forward a few decades.  That said, it is an extremely tricky environment and I hope ‘evolving’ as it is a major impediment to be in the one sector of the business world which is still operating as if it’s 1989.

We have news out that a couple larger firms in the broker dealer space are trying to push the rock…. it will be interesting to see the push back.  Making things even more complicated is we have different regulators issuing different rules based on if you are a broker dealer or a RIA (registered investment advisor) – FINRA for the former, the SEC for the latter.

Via Registered Rep:

• In a revolutionary step forward, Raymond James Financial and Commonwealth Financial are putting the “social” back into social media—they will soon begin allowing their advisors to interact with and engage in conversations with others on Facebook, Twitter, LinkedIn and blogs.
• In other words, they will be able to post tweets, updates and comments in real-time that have not been pre-approved. Today, advisors at Commonwealth and Raymond James are only allowed to post “static” updates—all posts have to be pre-approved and commenting is turned off.
• At least one other independent b/d already allows its advisors to use social media on an interactive basis: Cambridge Investment Research. Last September, the firm began using Socialware to track and archive its advisors’ posts, updates, comments and tweets on LinkedIn, Facebook and Twitter. About 10 percent of Cambridge’s 2,000 advisors are signed up for Socialware and the firm is working with these advisors to help them set up a social media presence, says Cambridge President Amy Webber.
• But most of the other 50 or so independent b/ds that allow advisors to use social media at all permit only static updates. Industry executives and consultants predict that a number of independent b/ds will make the switch to interactive updates in the next couple of months.
• “It’s an evolving process,” said Francois Cooke, a consultant in the broker/dealer division at ACA Compliance Group. “The first stage is to prohibit, and then firms go to the second stage, which is to allow limited use, with trials, a template and training. The third stage is when they start to allow more interactive use.”
• The move from static to interactive use of social media marks a major shift. “The way regulations work is this is viewed as a live appearance because it is conversational and can’t be pre-approved,” said Commmonwealth Chief Marketing Officer Todd Estabrook. “I think it will allow them to do exactly what they do in live interactions with clients and prospects, which is to engage in conversations, or invite conversations, talking about the kinds of things they might talk about in a seminar about retirement income. It’s better than a letter because the recipient can actually ask a follow up question and have an answer back from the FA,” he said.
• Until recently, the problem for firms was finding a way to track and archive these online conversations in order to comply with FINRA rules. Commonwealth announced late last month it had cut a deal with Erado, a software company that will do just that.
• FINRA issued social media guidance in early 2010 that says all broker/dealer member firms should have social media policies and procedures and have a system in place for tracking and archiving all social media communications, among other things.
• For RIA firms, the rules are less clear. Early this year, the SEC issued a sweep letter to a number of firms regarding their social media practices, but it has yet to issue specific rules on the subject.
• Under the new Commonwealth program, its FAs will be able to comment, post, respond, like and retweet on facebook, twitter, linkedIn and company blogs. The firm will offer a how-to guide on establishing a social media presence as well as best practices ideas and compliance guidelines. “It demonstrates how important we think social media will be as part of an integrated marketing strategy,” said Estabrook. About 400-500 of the 1400 financial advisors at Commonwealth use social media today, but Estabrook expects that number to jump in June, when the firm starts to allow interactivity.
• Raymond James CEO Dick Averitt announced Monday morning at the firm’s annual conference in Las Vegas that the firm is on the cusp of signing a contract with an outside vendor to retain and track all of its advisors online communications. He said the firm hopes to have a deal by the end of the month. “The deal will allow FAs to actively participate in conversations on these websites just as your 10-year-old does. At Raymond James we fully intend to participate in the technological advances that benefit you and your clients.”
• Erado CEO Craig Brauff, who could not be reached for confirmation, has reportedly said that there will be a number of similar announcements in the next month and a half involving around 25 of the top independent broker/dealers.
• There are at least four firms that track and archive social media interactions, according to Tim Welsh, president of consulting firm Nexus Strategy: Erado; Arkovi (BMRW) and Message Watcher LLC (Joint venture); Socialite by Actiance; and Socialware’s Risk Manager and Social Marketer.
• One reason Commonwealth chose Erado is because it allows the firm to capture activity from a single-user login, instead of an entire machine, so that if a financial advisor shares a computer with other family members at home, their privacy is not disturbed. “So if I am an advisor working at home in the den at the house, and I want to tweet about something and update my Facebook page with a thought, I can do that because I will have appropriately signed up, and my kids’ postings will not be tracked,” said Estabrook.
• ………..he expects social media regulations and tools to evolve over time. “This is it as we understand FINRA regulations to be now but that’s always changing as FINRA responds to what is happening in the marketplace,” he said. “But we are following all of that and we are working to keep them safe in this space. I think it’s going to keep evolving and our regulators will react accordingly.”

Copyright © Trader Mark

Tags: Broker Dealer, Business World, Commonwealth Financial, Dealer Space, Facebook, Financial Advisors, Finra, Free Reign, Impediment, Interactive Basis, Investment Research, Last September, Linkedin, Media Presence, Raymond James Financial, Registered Investment Advisor, Registered Rep, Regulatory Framework, Revolutionary Step, Twitter
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Warren Buffett’s Letter to Shareholders 2009

Sunday, February 28th, 2010

Warren Buffett shares his letter to shareholders just ahead of this year’s Annual General Meeting of Berkshire Hathaway.

Berkshire Hathaway Annual Report – via BRK
Warren Buffett’s Letters to Shareholders – via BRK

Here are some of this year’s nuggets. Buffett discusses how he and Charlie Munger, apply Charlie’s thinking to investing.

• Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But the future then also included competitive dynamics that would decimate almost all of the companies entering those industries. Even the survivors tended to come away bleeding.

• Just because Charlie and I can clearly see dramatic growth ahead for an industry does not mean we can judge what its profit margins and returns on capital will be as a host of competitors battle for supremacy. At Berkshire we will stick with businesses whose profit picture for decades to come seems reasonably predictable. Even then, we will make plenty of mistakes.

• We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses.

• When the financial system went into cardiac arrest in September 2008, Berkshire was a supplier of liquidity and capital to the system, not a supplicant. At the very peak of the crisis, we poured $15.5 billion into a business world that could otherwise look only to the federal government for help. Of that, $9 billion went to bolster capital at three highly-regarded and previously-secure American businesses that needed – without delay - our tangible vote of confidence. The remaining $6.5 billion satisfied our commitment to help fund the purchase of Wrigley, a deal that was completed without pause while, elsewhere, panic reigned.

• We pay a steep price to maintain our premier financial strength. The $20 billion-plus of cash- equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.

• We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree. That means we are sometimes late in spotting management problems and that both operating and capital decisions are occasionally made with which Charlie and I would have disagreed had we been consulted. Most of our managers, however, use the independence we grant them magnificently, rewarding our confidence by maintaining an owner- oriented attitude that is invaluable and too seldom found in huge organizations. We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly – or not at all – because of a stifling bureaucracy.

• With our acquisition of BNSF, we now have about 257,000 employees and literally hundreds of different operating units. We hope to have many more of each. But we will never allow Berkshire to become some monolith that is overrun with committees, budget presentations and multiple layers of management. Instead, we plan to operate as a collection of separately-managed medium- sized and large businesses, most of whose decision-making occurs at the operating level. Charlie and I will limit ourselves to allocating capital, controlling enterprise risk, choosing managers and setting their compensation.

• We make no attempt to woo Wall Street. Investors who buy and sell based upon media or analyst commentary are not for us. Instead we want partners who join us at Berkshire because they wish to make a long-term investment in a business they themselves understand and because it’s one that follows policies with which they concur. If Charlie and I were to go into a small venture with a few partners, we would seek individuals in sync with us, knowing that common goals and a shared destiny make for a happy business “marriage” between owners and managers. Scaling up to giant size doesn’t change that truth.

• To build a compatible shareholder population, we try to communicate with our owners directly and informatively. Our goal is to tell you what we would like to know if our positions were reversed. Additionally, we try to post our quarterly and annual financial information on the Internet early on weekends, thereby giving you and other investors plenty of time during a non-trading period to digest just what has happened at our multi-faceted enterprise. (Occasionally, SEC deadlines force a non-Friday disclosure.) These matters simply can’t be adequately summarized in a few paragraphs, nor do they lend themselves to the kind of catchy headline that journalists sometimes seek.

• Last year we saw, in one instance, how sound-bite reporting can go wrong. Among the 12,830 words in the annual letter was this sentence: “We are certain, for example, that the economy will be in shambles throughout 2009 – and probably well beyond – but that conclusion does not tell us whether the market will rise or fall.” Many news organizations reported – indeed, blared – the first part of the sentence while making no mention whatsoever of its ending. I regard this as terrible journalism: Misinformed readers or viewers may well have thought that Charlie and I were forecasting bad things for the stock market, though we had not only in that sentence, but also elsewhere, made it clear we weren’t predicting the market at all. Any investors who were misled by the sensationalists paid a big price: The Dow closed the day of the letter at 7,063 and finished the year at 10,428.

• Given a few experiences we’ve had like that, you can understand why I prefer that our communications with you remain as direct and unabridged as possible.

The complete letter is available here.

Tags: American Businesses, Annual General Meeting, Berkshire Hathaway, Brilliance, Brk, Business World, Cardiac Arrest, Charlie Munger, Competitive Dynamics, Competitors Battle, Dramatic Growth, Fallback Position, Gusher, Img Src, Kindness Of Strangers, Letter To Shareholders, liquidity, Nuggets, Openx, Profit Margins, Random Number, Supplicant, Television Sets, Warren Buffett
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Ayn Rand: Atlas Shrugged Prophetic?

Friday, November 13th, 2009

A new book by Anne Heller about Ayn Rand, and her philosophy of objectivism is making rounds these days, re-igniting the relevance and debates about Rand’s 1957 bestseller “Atlas Shrugged.”

Like many others before, the first time I read Atlas Shrugged it changed my life. It clarified my understanding of the world we live in, of the business world, of markets, and particular spoke to me about the obstacles of starting and building a business, and the kinds of people who could either help or hinder the entrepreneurial process. If you have not read it, you should. It is a great and epic story of what Rand felt was going wrong in America, and to a very large degree, it has been prophetic of the economic collision we are currently facing.

In her preface, Heller notes “Because most readers encounter her (Rand) in their formative years, she has had a potent influence in three generations of Americans.” I was 15 when a friend lent me The Fountainhead (he let me keep the book, a Signet paperback costing $3.50). I liked the novel, but was mystified by Dominique and Roark’s relationship. Though impressed by Anthem and We the Living, it was Atlas Shrugged that knocked me sideways.

If you are at all entrepreneurial about your business, Atlas Shrugged will clarify the world for you, move you, and speak to you.

In a Wall Street Journal column, last year Stephen Moore discussed the prophetic nature of Rand’s 50 year old multi-decade bestseller.

For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.

In the book, these relentless wealth redistributionists and their programs are disparaged as “the looters and their laws.” Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the “Anti-Greed Act” to redistribute income (sounds like Charlie Rangel’s promises soak-the-rich tax bill) and the “Equalization of Opportunity Act” to prevent people from starting more than one business (to give other people a chance). My personal favorite, the “Anti Dog-Eat-Dog Act,” aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn’t Hank Paulson think of that?

These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion “Emergency Economic Stabilization Act” and the “Auto Industry Financing and Restructuring Act.” Now that Barack Obama is in town, he will soon sign into law with great urgency the “American Recovery and Reinvestment Plan.” This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion — in roughly his first 100 days in office.

The current economic strategy is right out of “Atlas Shrugged”: The more incompetent you are in business, the more handouts the politicians will bestow on you. That’s the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies — while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to “calm the markets,” another trillion of national wealth is subsequently lost. Yet, as “Atlas” grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate “windfalls.”

I found this speech by Comcast Spectacor Chairman, Ed Snider, in which he describes how as an entrepreneur, Atlas Shrugged changed his life and the lives of his children, that he went on to found the Ayn Rand Institute, in order to foster teaching Rand’s Objectivism in universities across America, because he saw that so many young Americans were clueless about entrepreneurism let alone what capitalism once was.

Part 1 – 9:13 minutes

Part 2 – 2:21 minutes

Also, if it interests you, here is the original footage of Ayn Rand’s 1959 interview with Mike Wallace:

Part 1:

Part 2:

Tags: Ayn Rand, Burdens, Business World, Collapse, Crises, Downward Spiral, Fairness, Formative Years, Fountainhead, Government Programs, Havoc, Moral Of The Story, Objectivism, Productive Sectors, Roark, Sectors Of The Economy, Signet Paperback, Stephen Moore, Three Generations, Wall Street Journal
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