Between the Lines

It seems the relentless pursuit of alpha leaves no rock unturned. To help inform their investment decisions, investors have long used face-to-face meetings to read an executive’s body language and gauge their confidence, leadership and integrity.  Today, investors are increasingly leveraging linguistics and psychology to analyze every word, pause and intonation on earnings calls to read between the lines of what’s being said.  Technology, machine learning and big data help make this possible.

Some of the work being done in this area is pedestrian (e.g., noting whether the person who speaks the most on earnings calls also gets paid the most).  But other work can potentially be quite powerful.  For example, some use an electro-audiogram system to measure voice intonations to evaluate the speaker’s level of cognitive dissonance or truthfulness.  Others are mining linguistics to identify personality traits that may correlate with company performance or applying behavioral analysis techniques to explain, describe and potentially predict future outcomes.  An excellent example of the type of analysis being done is Business Intelligence Advisorsvideo that dissects a portion of Coinstar’s July 2010 earnings call to identify underlying red flags in what might otherwise sound like a typical Q&A discussion.

The increasing sophistication of these tools highlights that “how you say something is just as important as what you say.”  Issues of nuance are now more important as you have to think about how your audience or stakeholders hears or interprets things.  I know it’s not easy, but here’s some initial thoughts to incorporate into your practices:

  • Capture management’s tone and style to ensure scripted remarks feel and sound natural
  • Rehearse Q&A to help avoid awkward phrases and pauses that may be misinterpreted
  • Practice listening as a critical, impartial observer and be attentive to how language and tone may send unintended signals

It’s tough to read between the lines when you are creating the lines.  However, an enhanced awareness of how investors and others may hear and understand your company’s messages can only help your communications become more effective. 

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Lisa Ciota
Lead-IR Advisors, Inc.

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