The Art of the Earnings Call

The Art of the Earnings Call

Morning folks,

It would appear we are rapidly approaching earnings season once more. The big banks are set to start reporting next week, typically followed by Netflix the following week, before what James and I lovingly refer to as the “week of hell” — when all the major tech companies, plus about 50 other stocks in our shortlist, release their numbers.

We’ve spoken regularly about earnings and how the individual investor should approach them. For a long-term investor, it should be rare that a single earnings report will result in action being taken. Only in situations where a report points to a broken thesis — a change in the direction of the business, for example — should an investor be seriously considering dumping a position. Even in these scenarios, I would always advise investors to take a few days to consider before pulling the trigger.

It’s also important to understand the dynamics at play in an earnings release. I wrote recently in ‘The Expectations Game’ how a stock can react in confusing ways following a release, not based on performance but on expectations set by Wall Street analysts or the market at large.

One element of earnings season that I feel we haven’t paid enough attention to is the earnings call. This often plays second fiddle to the printed release, yet it’s an important source of key information that investors should not ignore.

That’s not to say that you should be gearing up to listen to every earnings call. These things can last over an hour, depending on the company, and as individual investors with lives to live, that’s a big ask if you’re holding a 20+ stock portfolio. So here’s my tips for making the most out of the earnings call with a limited amount of time:

Choose which calls to listen to carefully.

“He who defends everything defends nothing” — Frederick the Great.

Or, to put it more in line with our purpose, to focus on everything is to focus on nothing. You’ll know yourself what calls are going to provide the most interesting observations. How have iPhone sales fared under lockdown? Is Zoom converting free users to subscribers? What’s Chipotle’s delivery numbers like? These are the kinds of insights you are going to get in an earnings call. Not only will the information enlighten you about that particular stock, but it will provide hints into other businesses and sectors.

If a stock you own sees a major move up or down, that's a good sign you should listen to the earnings report. Obviously something big has happened so knowing what and how management is responding is crucial.

You don’t need to listen to it all.

After a while, you’ll figure out the format of the earnings call. The first part is typically pre-prepared statements by management. Rather than listening, you can read this part in the transcript. Sites like SeekingAlpha provide free transcripts of earnings calls. You can scan through this part much quicker than you can listen to it. Any important statements can be copied into a note-taking app.

Do listen to the questions and answers section

After the pre-prepared statements, comes the questions and answers section. This, in my opinion, is where the real value lies. Here you’ll see Wall Street analysts asking sometimes tough questions of management. Keep in mind, these guys follow the company for a living. They should know the company inside out. Therefore, they’ll know the questions to ask. This can bring great insight into elements of the business you may have never thought off before. Perhaps there’s a lawsuit you weren’t aware of. Or maybe there’s a new product scheduled for release.

Unlike the pre-prepared remarks, this is where tone is important. Does management seem confident or nervous? Do they sound like they know what they’re talking about? Are they concise or discursive?

During the questions and answers section, you should be taking notes. The same analysts will be asking follow up questions during the next earnings call. You can look back and see if management did what they said they would or whether they’ve got some poor excuse for underperforming.

If you’ve never listened to an earnings call before, I suggest you start. Pick a few businesses that you’re interested in — either because you own them or you’re thinking about investing in them — and follow the advice above. The company press releases, which are typically regurgitated by the press, are neatly manicured. On the call, you can discover much more about the people you are entrusting your capital to.

Earnings calls can be found on the company’s investor relations website. Transcripts can be found on

For more Insights related to earnings, you can read the following: