Investors often snicker when public companies make important corporate announcements late Friday afternoon, just as the stock market is closing for the weekend. More often than not, these announcements contain negative information about the company.
Unfortunately for investors, late-Friday announcements often appear too late to allow them to sell. Even better, journalists have already drafted their weekend columns.
Cynics suspect the company hopes investors will calm down by the following Monday and journalists will ignore the report as "last week's news".
As far as my personal investment practices are concerned, I worry about investing in companies that issue critical earnings-related announcements very late Friday afternoon.
There might be an entirely innocent explanation of course. But experience teaches most companies release financial statements or important price sensitive information at 7:00am.
This practice is encouraged by the London Stock Exchange in order to give investors adequate time to evaluate new information in advance of normal trading hours.
Earnings announcements or trading updates are occasionally released in the middle of a trading day as well. This is less desirable for private investors because it provides an advantage to market professionals who are able to constantly monitor all news feeds. Even so, releasing information in a timely manner is often better than delaying it and increasing the chance of leaks or trading abuses.
More worrying are important financial reports that are issued very late on Friday afternoon. Announcements of this type frequently contain disappointing information. For this reason, I treat them as important warning bells. In the short term, it can be a sign that the company is trying to hide something. Longer term, I worry about management quality, judgment and values.
At the heart of my concern is the basic issue of trust and confidence.
I often cross these companies off my list of possible investments for the future and keep them off unless senior executives who could have been involved in the timing of the announcement have left the company. There may be an innocent reason for the timing announcement of course, but with thousands of other companies available for investment, why run an unnecessary risk.
Two examples of the late-Friday phenomenon occurred on Friday, September 7.
At exactly 4:30pm, just as the stock market closed, Tadpole Technologies announced an important contract with Ordinance Surveys GB, initiated just six months ago, was unexpectedly cancelled. The company went on the say the cancellation would have a significant adverse impact on the company.
It is worth noting that Tadpole had issued five other earnings-linked statements in the last 12 months. Each was issued by 10:00am
A few moments earlier, at 4:17pm, Desire Petroleum issued its interim earnings report. At first blush, this oil exploration minnow searching for oil in the South Atlantic turned in acceptable results. Losses were reduced from £1.7 million in the prior period to just £0.6 million. Even better, a number of recent geological studies showed improved hydrocarbon prospects in several locations licensed by the company.
There was one fly in the ointment which, unfortunately, was a giant one. Desire had done no drilling in the most recent six-months. This problem has been festering for several years. A similar note of caution was raised by the company as far back as September 2005. Apparently, drilling rig owners remain loaded with work and have raised prices to levels beyond the reach of tiddlers like Desire.
News of this nature might trouble some private investors for a good reason. An investment in Desire is a bit of a long-shot. Significant oil finds could raise the value of shares by a whopping degree. But a continued lack of progress could eventually move shares in the opposite direction.
Here is another point worth thinking about. Desire delivered full year and interim statements in the past several years at 7:00am. The issuance of the current report was out of character for this company.
I know nothing about either Tadpole or Desire other than information that is publicly available to all investors. I accept that there could be an entirely innocent reason for both late-Friday news releases. Even so, from long experience, I choose to view any future investment in either company with a higher degree of caution than is normal.
One closing note. Private investors can monitor news releases from any company that is listed on the London Stock Exchange by logging on to http://www.londonstockexchange.co.uk/en-gb/pricesnews/marketnews/ The LSE also provides a free email alert system which immediately forwards a copy of all corporate releases for companies of interest to registered investors. Both services are well worth utilizing.