Wednesday, February 08, 2017

February 8, 2017--Over-Under

I have a friend who's a big sports fan. Especially of professional football. So Super Bowl Sunday is his national holiday. Bigger than Thanksgiving (though he can watch at least three NFL games then and ignore the turkey), more important than July 4th, and ditto for New Years (though again there are some games that day which he watches while the rest of us struggle with hangovers).

In truth, he's not really a sports or football fan. He's a sports gambler. He doesn't root for any teams except when he has a bet placed on one of them.

So a few days before last Sunday, when he said, "Can you believe the over-under?" I knew he was talking about the game and betting, but I had no idea what he meant.

"Over-under? I never heard of that. What is it?"

"Fifty-six points."

I continued to be confused, "Enlighten me. I don't know anything about this."

"That's the number of points that oddsmakers say both teams will score." Seeing I was still not following him, he added, "Not each team but the number of points both teams will score. The total of both of their points. Say the game ends with Atlanta scoring 30 points while the Patriots score 26. That would total 56 points." He grinned at his ability to explain this to someone as untutored as me.

"So if you want to do over-under who do you root for?"

"For both of them because if you bet under, you hope that the teams will score fewer than a total of 56 points. And if you bet over, you hope both teams' totals will be more than 56 points."

"Doesn't sound like any fun to me. I like rooting for one team to win and . . ."

"You can do that too by, say, betting on Atlanta and taking the points."

"Now you really have me confused. I just want to watch the game and hope it turns out to be an exciting one."

He waved me off as hopeless.

But it did turn out to be a great game and that made me happy especially since as a half-time-a-year Mainer, I was rooting for New England. They won and scored a total of 34 points. The Falcons scored 28 and so their combined score was 62 points, six points above the 56-point over-under.

You figure it out.

A day or two later, still thinking about over-under, I realized that many stock market investors think in exactly the same way. They too, we too are gambling and frequently on the over-under of a company's earnings. Particularly how actual quarterly earnings either meet, exceed, of miss quarterly income projections. And as with football betting, you win or lose on the over or under. It's not about a company doing well but whether or not it beats (is over) or misses (is under).

So when Amazon reported it's quarterly earnings last week--since we have Amazon stock which over time (the old fashioned way of investing in the market) has done very well by us--I was focused on how well its earnings and profits looked. More important to the majority of investors on the other hand, who see the stock market as a big casino, was its over or under. Would earnings hit, beat, or miss estimates. In other words, what would the over-under look like.

Amazon's earnings were $1.54 per share, beating estimates which foresaw only $1.35 per share, but the company's total quarterly earnings were "only" $43.74 billion, while estimates were looking for more, for $44.66 billion.

To complicate matters, revenue was up a noteworthy 22.4 percent compared to the same quarter last year.

Overall this should have been good news, but missing the earnings estimate, the under, was enough bad news for shares of Amazon stocks to drop nearly 30 points, or dollars, down to about $800 a share. Thus, our portfolio took a hit.

I told my friend about this and he wasn't surprised. "Like I always say, people will turn everything into action. In fact, if you're interested, the odds makers have already established a line for next year's Super Bowl."

"You're kidding."

"I'm not. They are saying that the Cowboys and Patriots will meet in Super Bowl LII. With the Pats favored by 4.75 to 1. If I were you I'd drop a couple of hundred bucks on New England. Use some of your Amazon money."

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