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THE INFORMATION
L A U N D R O M A T
Whispernumber.com is
beating the best minds of
Wall Street -- but nobody
really knows how.

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By Mark Gimein

Oct. 26, 1999 | Imagine getting a hot stock tip in a conversation with a friend. The friend tells you that the tip comes from a number of "inside sources." At least he thinks so. But he's not really sure because he himself gets his tips in the mail, in unmarked envelopes. He doesn't know who his sources are, where their information comes from or why they're distributing the hot tips. Many of his informants don't even agree with each other. But he's used these tips before, and often they've worked. He's not really sure why.

Do you trust the tip?

I found out about Whispernumber.com from a story on the financial news site CBS Marketwatch. Last week, IBM reported its earnings, and they came in a little above what analysts had forecast, 93 cents a share instead of 90. Marketwatch duly reported that IBM had beaten the analysts' projections, but more intriguing was the report that it had also beaten the "whisper number" of 91 cents a share -- a number that Marketwatch attributed to Whispernumber.com.

"Whisper numbers" have for some time been a subject of debate on Wall Street. Routinely, company profits exceed the "official" expectations of investment bank analysts. They almost have to: Companies that merely meet expectations are pummeled by the marketplace. The "whisper number" is a mysterious beast, a number leaked by insiders and traded furtively by analysts -- the "real" number that reflects what the big players on the Street really think a company's earnings will be for the quarter.

The details of the earnings forecasts don't matter that much -- in this case, after all, analysts' guesses and the "whisper number" weren't really that far apart (though, for IBM a difference of a penny a share in earnings does translate into millions of dollars). The really interesting thing was that a site called "Whispernumber.com" sounds a lot like "insideinformation.com" or "therealtruth.com" -- just a little too good to be believed. If the information was that good, where did it come from and why would anybody put it online? And is it really that good?

It turns out that the answers are a lot more complicated than one might expect. It turns out that the data is both surprisingly useful and troublingly mysterious.

Whispernumber.com is a stunning case study in the genealogy of information. You can think of it as the ultimate information Laundromat: Information from Whispernumber.com users and the rest of the Web gets thrown into a machine, washed clean of its origins and air-dried into a single consensus "whisper number." That number then gets picked up by a major news source -- in this case, CBS Marketwatch -- whereupon it turns into still one more piece of data that number-starved investors grab at to get a little edge in their trading.

Whispernumber.com, the site, is barely 5 months old, founded in June by Paul Hauck and John Scherr, two former Dunn & Bradstreet marketing directors. It's currently owned by the Internet Financial Network, itself partially owned by the huge financial services provider CitiGroup. But Whispernumber.com, the phenomenon, is something much more than just another Web site aimed at capturing the eyeballs of day traders and other information-hungry investors. Whispernumber.com's murky, untraceable numbers may actually be more accurate than the "official" numbers -- a disturbing fact that throws into question our whole understanding of how to value "information."

Next page | Beating the best that Wall Street can offer