Looking Forward To Friday? Avoid these Serial Friday Reporters that underperform over 40%

Looking over a relatively benign humpday, we wanted to take a look at companies who frequently file 8k’s after market close on a Friday. Using Sentieo’s powerful search engine, we were able to rapidly cull this data. Then pairing this with returns data from our Excel plugin, we backtested the extent to which consistent late-Friday reporters underperform the market. Trader’s intuition tells us that these aftermarket shenanigans are never good news, but does it hold up to the facts?

As former buy and sell-side analysts, we’ve all been there – thinking that we are done for the week, making plans for a night out with friends – and then headlines roll in, traders yell, and we have a sale or guide down or some other random corporate action to model on our core coverage. It is rarely pretty. The more stable of us eventually learn to leave the analysis til Sunday, to get an idea of what everyone else says over the weekend since markets don’t trade anyway. But is it really even worth it?

The Serial Offenders

Polling our document search results, we looked up S&P500 members over the past 3 years who have published 8k’s after 4pm EST on Fridays (this approach underestimates the count slightly as it doesn’t factor for long weekends). The first blush result surprised us.

Pop quiz – wh percent of the S&P500, a prestigious club with best in class investor relations and corporate management, has kept analysts up late on a Friday? 10%? 15%?

 

 

Have an answer in mind?

 

 

It’s 52%. No sector is safe.

friday2

Here is the list of companies, which includes both consensus shorts as well as some well-covered names:

friday1

44% Underperformance after Filing

We can pull price history easily enough with Sentieo’s Excel plugin. What does performance look like for Friday reporters on, say a 7 day window after they drop their Friday bomb?

friday3

To clarify, we ran our backtest every Friday for all S&P500 companies that report after 4pm ET, holding those stocks for 7 days, and repeated for every Friday for the past 3 years. We constantly rebalance the same amount in them that we have in the equal-weighted portfolio of all S&P500 to get the same dollar market exposure.

The end values are $190 for the S&P, and $106 for the book of Friday Reporters, making for 44% underperformance after 3 years of being long a generally bullish market. Involvement in these names has to be a material drag on performance.

This underperformance persists for even the 2 week and 3 week windows we tested.

However, we don’t stop there. The news is not all bad. What happens if you have a longer holding period and actually ADDED to your convictions after overreaction to late Friday news?

friday4

The underperformance evens out over time. A suitable object lesson perhaps, and not often enough reiterated by brokerages and television talking heads that want you to constantly trade. Maybe now you can have some comfort and look forward to TGIF!

 

New call-to-action