Whisper numbers just a lot of hot air

Pssst, individual investor: You might want to think twice before listening to whispers.

Whisper numbers, the increasingly popular but unofficial company earnings estimates published on rogue Web sites, have become relatively unreliable and are now less accurate than estimates from institutional investors, according to new research.

Whisper numbers missed fourth-quarter earnings estimates by 30 percent, while institutional analysts were off by 22 percent during the same period, according to an analysis by business media company Bloomberg.

When Bloomberg conducted a similar study in mid-1999, whispers fared far better--besting the institutional analysts by a wide margin. Back then, whispers missed estimates by 21 percent, while analysts were off by 44 percent.

Bloomberg credited slumping economic fortunes for the improvement in analyst estimates.

Analysts tend to underestimate earnings, often resulting in a stock surge when the company beats estimates, while whisper numbers tend to overestimate earnings. The sagging economy means that analysts' relatively modest estimates are closer to reality than the typically bullish whisper numbers.

Originally, whisper numbers were last-minute revisions that analysts did not include in their official reports but instead "whispered" to their best clients when a company was about to beat earnings estimates. The first published reference to whisper numbers came in 1994, according to a 1999 Purdue University study.

Investors perceived whisper numbers as the most accurate barometer of whether a stock would take off after an earnings surprise. But few had access to the insider tips, which often came from analysts' sources in the financial departments of companies they covered.

That changed with the popularization of the Web as a means of financial data collection. In the past three years, a slew of Web sites dedicated to whisper numbers--such as WhisperNumber.com--have made them accessible to millions of people. They became especially popular with day traders, individual investors who reaped large sums of money during the stock market bull run of the late 1990s.

They soon became so widespread that the mass media began citing whisper numbers in addition to official estimate calls from investment banks. Bloomberg News and Reuters wire services routinely include whisper numbers in reports and articles that often get picked up by mainstream newspapers and magazines.