Sales

來源:Victor Niederhoffer
日期:2010/07/20

Of all the canards, snares, delusions, and misinformation about markets designed to put the investor on the wrong foot, to increase the flow and likelihood of resources from those at the bottom of the web to the top, surely one of the most destructive is the idea that sales are more important than earnings, an idea that seems to have the market in its grip. The reaction of IBM to an increase in earnings above estimate of 8% and sales below estimate by 6%, with the stock dropping 5% is just one horse from that dump heap.

Same thing happened to General Silo when it announced great earnings but sales declined. Must make all these proud CEO's shake their heads in disbelief when they tell their boards that they can't believe that the stock is down when they're doing so well, and their every sale is at a profit and they are only selling profitable products rather than just selling anything they can to get cash.

Indeed, the first item reported now from the traditional income statement announcement is the sales number versus the corresponding quarter, and the surprise factor of sales. Compilations of companies that beat the bogey for sales are now almost as numerous and useless as those for earnings.

Sales are the easiest thing in the world to manipulate. From economics, the buyers have a demand curve for a product, with alternate uses and utilities for it. The marginal utility of each additional unit decreases. At a low price, they will use it and buy it for many uses. For example, the traditional explanation in Heyne where water is used for plants and baths at low prices but only for drinking at a high price.

From a practical standpoint, every business person knows a million ways to increase sales at the expense of profits. you can sell to bad credit risks. You can dump inventory at close to cost. You can offer discounts for bulk orders or pre orders. You can reduce the price and ask your customers to store it for a rainy day or some other use. You can sell to a wholesaler or distributer instead of the ultimate customer, especially for a price. You can justs turn over your product to your customers with a "I'll take 5% on this. Just enough to keep me going". Or you can produce a higher quality product with better terms and tell the customers what a bargain they're getting by taking it out of your hide. Or you can buy a division or company to expand sales, or work off your inventory to change the number.

Indeed there's no item in the expense or revenue side of the income statement that can't be manipulated to increase sales. From a value standpoint, the stockholders desire an increase in wealth, not an increase in sales. What gives them wealth is earnings, not sales.

Okay, where do all these crazy reactions to sales come from? There must be some academic study, doubtless done with retrospective data that shows that sales provides information. And some earnings aggregator sellers must have shown that sales is a important signal with data from one of the retrospective data files that are so misleading and cause so much havoc. Or perhaps there was one period with a turning point where style investing based on sales had some information value.

Of course, companies are very smart, and it's so much easier to manipulate sales than earnings because you don't have to have the complicity of the accountants or move one item on the balance sheet to never never land to change sales. So even if sales were once of reasonable signaling value, now they will be changed in cycles in the typical Baconian way, and of course the public will be behind the form even more than usual.

But in the interim, what a fantastic opportunity to take advantage of this ridiculous malarkey and the reactions of stocks thereto.

The funny thing is what must go on before the release of the income statements these days. The insider and the outside flexions for the big companies must keep the earnings in the hip for a few weeks on a need to know basis only with smug satisfaction that they have beat the guidances they gave out to the analysts and the favored institutions and that they have pulled the wool over the eyes of the accountants to a reasonable degree to pull the earnings into the right territory. Then the horrible realization must come that they forgot to run a sale of buy that division before the quarter occurred and the sales numbers actually show something below the bogey must arise, and their smug satisfaction turns to the agonizing thought that even though business is great, they're going to have to do a lot of explaining to the board as to why the stock is down.