The Moral of the Story: Try Not to Disappoint Analysts

A long time ago, when the earth's crust was still warm, I worked at what was then known as a "database management software" company. It was a very good one. It had innovative products, many satisfied customers, the first successful pure-software IPO (and the first pure-software listing on the NYSE), profit sharing, free doughnuts in the coffee room and Christmas parties to remember, believe me. In those days I didn't entirely comprehend why John, as everybody fondly called the president, CEO and founder, was always so careful not to pump up the company too much in public, even though it did phenomenally well for a long unbroken string of quarters — until it made The Big Mistake — and to tell the stock analysts who periodically came around that we'd "probably" earn "oh, maybe 18 or 19 cents this quarter" when we were well on track to make more. That's how young I was. Now of course I know that analysts can and will punish you mercilessly and out of all proportion for disappointing their expectations, while occasionally throwing you a block party if you surprise them to the upside.

And so we come to a company like Barr Pharmaceuticals which disappointed on earnings today and paid the price. It reported first-quarter profit doubled over the period last year, but it came in under analysts' expectations anyway and lowered its 2008 outlook; the stock slid $11.55 or 23.3%. That's cold; but welcome to Wall Street. (Maybe the best bet would be to track down the nicest, least-vindictive group of analysts and then just invest in whatever they're analyzing.)

On the subject of dividends, the 21st Century Investor Dividend Portfolio today sold a big drybulk shipper (ore, grain, cement, feed, coal) who acquired one of our drybulk shippers a month ago and proceeded to go almost straight up. Why sell so soon, you may ask, when it's rising every day. Because it isn't a dividend stock, giving a payout of only 20 cents a quarter or an annual 2.2% when we acquired our shares. The sign says Dividend Stocks Only -- All Others Keep Out. It gave us about $9.62 a share or 27.4% since April 17, not a terrible return, especially when you factor in the 126% we made on the original position. You shouldn't annualize the 27.4% because in all honesty the short time period makes it meaningless, but if you do, you'll get about 419%.