Concall Confessions: What Analysts Miss While Chasing Guidance

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We're navigating through strange and unpredictable times - again. Just when things seem to settle, a new twist shows up.

The latest?

Tariffs and trade tensions are re-emerging on the global stage. While not entirely unexpected, these kinds of moves can trigger ripple effects that are hard to predict-especially the second-order ones that only make sense in hindsight.

That said, the Indian markets have bounced back impressively this week.

The Nifty and Sensex are up 3.6% and 3.5%, and even more excitingly, midcap and smallcap stocks surged ahead by 5.4% and 7.8%. A pause on reciprocal tariffs, helped fuel this rally.

But (and this is important)-it's not the time to get carried away.

There's still a lot in flux. Rather than chasing potential winners in a global trade shuffle, we're focusing on businesses that are more insulated from political drama. And while smallcaps had a great week, I would advise against getting overexposed.

Stick to your asset allocation. Stay selective. Take a slow, staggered approach. Respect the margin of safety while buying stocks.

In markets like these, protecting your capital is just as important as growing it.

Now that the markets seem to be getting over the tariff blues, the next big event is the earnings season. Last year, I shared with my readers my views on result season, and with the earnings announcements kickstarting, I think it's a good time to revisit it.

If you have been associated with me for long, you know that I consider most of these much-hyped events as distractions.

The result season is the busiest time for analysts. It keeps them occupied with year on year and sequential growth, deviation analysis, and extrapolating future performance based on what happened in the quarter.

They also ask bookkeeping questions from the managements and pressure them to give growth guidance on concalls.

I believe that concalls with the managements offer a great opportunity to get a sense of their vision, to assess their transparency when the going gets tough, and their focus and priorities - long term sustainability or short term targets.

These concalls can help analysts understand the broader industry environment and the company's competitive positioning.

But I'm also aware of the limitations of such concalls.

They can defeat the purpose of better understanding and analysis of the business when the analysts resort to upgrading target prices and valuation multiples based on a single quarter's performance... or when they take the management's guidance too seriously.

I find this quest for precision and the short term obsession, futile and farcical.

GE (General Electric), along with its superstar CEO Mr Jack Welsh, is a case in point. Under his leadership, the business at GE was driven by short term targets. Perform or perish was the guiding mantra.

Obsessed with Wall Street's earning expectations, the company met and surpassed consensus estimates every quarter for almost a decade (1995-2004). And the stock price followed.

But this growth came at a huge cost and with accounting gimmicks, as the subsequent years revealed.

In the pursuit of growth led by acquisitions, the company became too big to manage or to be nimble. Its unregulated finance arm - GE Capital - that lifted the performance - turned out to be the biggest chink in the company's armour.

When the subprime crisis struck, the credit market dried up. The money spinning finance arm thus became its undoing. Sharing lofty guidance, even meeting them in the short term, did not help the business or its investors.

There are businesses that are owner operator driven where managements neither offer nor fall for this bait.

Then there are appointed managers who love to spew out quarterly guidance. Always be cautious of the precise ones in the short term. The pressure to meet them and street expectations is one of the biggest reasons for poor capital allocation decisions.

A company may still meet short term guidance, and dole out to the concerned appointed manager, his short term performance linked incentives. However, it does little good for the business in the long term.

You could deploy the best of forecasting skills, and top them up with fancy DCF analysis, but a business won't follow the trajectory as projected in excel.

Throw in a bit of red sea crisis, a pandemic, a war, a liquidity surge, or a regulator suddenly coming up with a ban, or a whimsical President... and it won't matter how much precision you were working with.

It's best to be humble in this profession and aim to be roughly right than precisely wrong.

That includes admitting that no matter how hard we try, not all the variables can be factored in precisely. There will always be 'known unknowns' and 'unknown unknows' in practice.

In almost a decade long career of doing fundamental analysis, being on these calls, and making excel models, I can confirm that it has hardly ever happened that my numbers were exactly in line with what was reported.

Nor did the stock price hit the target price in the exact time frame I projected it to.

So instead of trying to be accurate about that percentage point in growth or margins, it's better to assess if we are investing in the right management team that's operating in the right industry from an investment perspective.

In fundamental analysis, you need a sense of the trajectory. But the focus should be more on the expected direction, understanding the downsides, and ensuring a margin of safety.

And this is what I am looking forward to from the current earnings season.

I'll be using this opportunity to interact with the managements and evaluate them in the way I've mentioned here.

We will also be sharing quarterly updates with our subscribers, with the disclaimer that they shouldn't give quarterly performance more attention and importance than what it deserves.

Focus on what's important - the industry or opportunity size, potential downsides (including from tariffs), balance sheet quality, and the management quality.

Also keep in mind, the time horizon of the investment and your personal asset allocation.

Finally, welcome volatility and uncertainty. It's what is not yet known and factored in, that provides opportunities to outperform the market.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)

Richa Agarwal Research Analyst at Equitymaster, has been leading the Smallcap Research desk for over a decade. She is also the Editor of Hidden Treasure, Phase One Alert, and InsiderPro Stocks recommendation services.Richa's approach to identifying high potential stocks is rooted in deep management interactions and on ground research, and in taking cues from insider activity. She has travelled thousands of kilometres meeting managements and analysing businesses across India's small and mid-cap universe. Her edge lies in connecting management intent with financial reality.

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1 Responses to "Concall Confessions: What Analysts Miss While Chasing Guidance"

sandesh bedmutha

Apr 19, 2025

hi,hello .
as usual, so much to learn from u.
It's best to be humble in this profession and aim to be roughly right than precisely wrong.

That includes admitting that no matter how hard we try, not all the variables can be factored in precisely. There will always be 'known unknowns' and 'unknown unknows' in practice.

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