| Investing insights

Language of CEO: Verisimilitude of the orator should be questioned

by | Oct 10, 2019

Carlo Cannell’s letters are often sharp.

In March 2016, Carlo Cannell sent a letter to the Chairman of the board of Build-A-Bear Workshop, Inc. He wrote, “You couched your pitch to us while using the word “honestly” eleven times. It is the experience of Cannell that when a member of a Board of a public company who does not own much stock of the Company itself, uses the word “honestly” or the words “to be truthful” with such a high frequency, that the verisimilitude of the orator should be questioned”.

Quite similarly, in 2017, Chicago Booth published an article titled “How to listen for the hidden data in earnings calls”. The article argued that language used in earnings reports can be quite revealing. One of the takeaways from the article is that when a CEO tells analysts that ““lumpiness,” “headwinds,” or a “wait-and-see” period is on the way, it may be time for an adjustment in your portfolio.

Moreover, Sentieo, a financial data platform underpinned by the latest search technology, published an article explaining an amazing feature of its product – “sentiment analysis”. Sentiment is calculated as the percentage of positive words and the percentage of negative words (of total words). Sentieo argues that the “language of CEOs should not be discounted”.

Key takeaway: Pay close attention to the CEO’s language. Also, check the number of times the CEO uses the word “acquisition”, and how bad news is delivered – it is a red flag if the CEO tries to obscure the details of bad news.

Disclaimer: We have no tie-up or agreement with Sentieo.

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