Dealing with earnings season

With companies having started to report quarterly earnings we are back in the ‘earnings season’. This is a fairly hectic time for equity analysts on both the buy and sell side. It is quite common for sell side analysts to cover 15-20 stocks while their buy side counterparts can look at a higher number. The trade-off is however in the fact that the sell side analyst needs to look at numbers at more depth and then also perform the task of client communication. Nevertheless, the bottom line is that its a hectic time for all.

While long term investors often complain about the hype Wall Street (or any other street for that matter) places upon quarterly numbers the truth is that we analysts can’t afford to ignore these numbers. The quarterly numbers might have a small clue about a change in trend in one of the major drivers of the company. We really can’t afford to miss that.

So I found myself thinking about making life a bit easier. Here are some of the ideas that came to my mind

1. The truth is no matter how much we prepare in advance we need to be mentally prepared for a tough few days. However we can make life easier by not trying to publish any major research reports and not doing any general client calls. The idea is to keep the calendar as clean as possible which gives us time to crunch the numbers.

2. The second bit of advice actually applies for all times. KEEP YOUR MODELS SIMPLE. Unless necessary, there is no point in preparing a 400 line model that takes hours to update. Having simple models keep update time to the minimum and even makes us think better as an analyst. It takes away the focus away from the numbers to the thinking behind the numbers.

3. it also helps to have a rough format for the earnings commentary. No need to recreate the wheel every quarter. Think of this as a checklist and as Mr Atul Gawande has shown a checklist can be an amazing tool to ensure we don’t miss anything important.

4. Having an important client list for every stock covered can be helpful. While we do send updates to all clients we can afford to send emails to a few important clients who are interested in a particular stock. Always good to get some brownie points.

That is all I have for now. Hopefully I will find a few more tricks with time.

Asif Khan, CFA

Asif Khan is presently a Research Analyst (Financial Sector) for Exotix which is a frontier market focused investment bank. He has more than 6 years of work experience as equity analyst in both buy and sell side roles across Asian frontier markets. Asif is a CFA Charterholder and has a dual major in Finance & Economics from North South University.

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