What's the value of a whisper? According to the research of three university professors, whisper forecasts--the unofficial estimates of corporate earnings that circulate among traders and investors before official results are revealed--could help you fatten your investment portfolio.
In their year-long 1997 study, business professors Mark Bagnoli Messod, Daniel Benish and Susan Watts compared 943 whispers to more than 3,500 traditional analyst forecasts for 127 firms. They found that the whispers tended to be more optimistic than those coming from traditional analysts--and more accurate.
"Most of the whispers we found were for high-technology companies," Watts explains. "They tended to be fast-growing, young companies that don't have lengthy histories." This makes earnings statements very important pieces of information.
Before you begin frantically searching financial Web sites and discussion groups for whispers on hot stocks, consider this: Whispers are basically unsubstantiated rumors, and because it is impossible to know for sure who they come from, their credibility is sometimes suspect, Watts points out.
"Any time you use a whisper forecast [to buy stock], you run the risk of getting bad numbers," says Watts. "If you try to take a trading position on it, you have to be aware that while there are many good ones out there, clearly some of the ones we found were not very good."
So where is the place to look for "good" whispers? Watts advises logging on to the Web sites that are more established, like the Motley Fool (http://www.fool.com) and Silicon Investor (http://www.techstocks.com). And don't bet your retirement on what you hear.