It’s not what you say, but HOW you say it. How can this concept help you as an investor? [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
We’re excited to share another great investing tip and coaching comment in today’s article.
We hope you’ll find this topic helpful and insightful as you craft your own investment strategy. Applying this lesson will help you succeed as an investor and grow your portfolio.
Are you ready?
Read the article below to know why you shouldn’t just be a good speaker but also a good listener in the investing world.
The Independent Investor
Are you familiar with “Billions,” the American TV series that runs from January 2016 up to the present?
This is a SHOWTIME production about Wall Street hedge funds. The story revolves around the cat-and-mouse game between powerful hedge fund manager Bobby Axelrod (played by Damian Lewis) and shrewd New York attorney Chuck Rhoades (played by Paul Giamatti).
The mainstream media claims Axelrod is a depiction of billionaire investor Steve Cohen, founder of hedge fund company Point72 Asset Management and owner of the New York Mets of Major League Baseball (MLB).
However, if you look closely at Axelrod’s character throughout the series, you’ll realize that the show’s writer created a fictitious money manager from a combination of famous faces in the investing industry.
In fact, several incidents in Axelrod’s life can be associated with real-life situations reported in hedge fund headlines.
One in a Billion Lessons from “Billions”
The ongoing TV series managed to stop Valens Research’s CEO and Altimetry Financial Research’s Chief Investment Strategist Professor Joel Litman, and Valens Research’s Director or Research Rob Spivey on their tracks.
In one of his coaching comments to his Valens Research workforce, Professor Litman shared that a few years ago, Spivey called him late at night and urged him to watch a particular episode from one of the later seasons of “Billions.”
Spivey even gave Professor Litman a particular timestamp and told him to watch the episode immediately. As Professor Litman paid attention and listened closely to the show, his jaw dropped upon approaching the scene of the timestamp.
Any guesses on what was “it” that captured Professor Litman and Spivey’s attention?
In that specific scene, a part of the script said:
“The fund managers were using a special analytical tool to tell them whether [or not] management teams were lying on earnings calls.”
That particular episode of “Billions” referred to something that sounded a lot like Altimetry’s Earnings Call Forensics (ECF) analysis tool. In fact, the way the statement was phrased could’ve come straight out of Professor Litman’s mouth!
In case you’re not familiar with ECF…
ECF is a proprietary research tool that contributes to Altimetry’s fundamental analysis. Aided by advanced audio technology, this tool allows Professor Litman and his team to listen to managements’ earnings calls in a “systematic and incredibly sophisticated way.”
Thanks to the ECF, the team is able to measure managements’ inflections in speed of speech, tone, hesitation levels, and changes in “breathiness.” Afterwards, they compare that against managements’ spoken words and the numbers.
The description of an ECF-like tool in “Billions” surprised Professor Litman and Spivey. They even wondered if one of the personnel involved in the show’s production ran across Altimetry’s work.
Try watching the show during your free time too! You’ll learn different methods financial analysts use to gain informational advantage—knowing something others don’t.
Why LISTENING Helps You Gain an Informational Advantage in the Investing World
According to Professor Litman, investors who jump through hoops to gain an informational advantage are also the ones who value Altimetry’s ECF research the most.
For them, the ECF is the closest they can get to seeing inside the minds of management teams. The tool allows them to get a better idea of what to expect from a company before everyone else.
That’s also how Professor Litman and his team got ahead of the market in May 2020!
Back then, people believed the world was falling apart. There didn’t seem to be an end in sight as the world was deep into the second month of what was supposed to be a one-month lockdown only.
That was when Professor Litman and his team saw an opportunity amid the panic. Since people were spending most of their days at home, they would inevitably need to fill their time with something to do.
In short, home entertainment equipment would be a HUGE COVID-19 beneficiary. So, Professor Litman and his team set their sights on Sonos, the company that makes simple, high-quality stereo equipment for homes.
The next thing the team did was analyze the company’s Q2 2020 earnings call using the ECF. Below are two highlights they got from listening to Sonos’ management team’s call:
- Management was confident about strong sales for portable smart-speaker system Move, one of Sonos’ top products.
- Executives were thrilled about overall booming demand. They believed Sonos’s new offerings were also taking off.
Through the ECF, Professor Litman and his team could tell management wasn’t faking its enthusiasm. They truly believed Sonos was in a great position to benefit from the pandemic.
Because of that, Altimetry recommended Sonos to its “High Alpha” subscribers in its May 2020 issue. Shortly after, the market caught on with the firm’s research.
Isn’t it awesome—being able to gain an informational advantage and be one step ahead of others?
That’s why as an investor, you also have to be a GOOD LISTENER. This will help you pick up on lots of cues compared to when you’re simply reading from a transcript or any other investment-related materials.
According to Professor Litman, Altimetry’s clients never treat the ECF like a magic eight ball. They like this tool because it lets them double and triple check that they’re right in their investment strategies.
You can also implement some principles of the ECF analysis in your everyday research as an investor! All you have to do is listen to the earnings calls of companies you’ve invested in.
The key word here is the verb: LISTEN to those earnings calls.
It’s not enough that you read the transcripts. You’ll know so much from hearing how people say things, not just what they say.
By paying attention to a management team’s tone during an earnings call, you’ll learn all sorts of information hidden below the surface.
We hope you learned a lot from today’s topic!
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
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