You may have played the game “telephone” as a kid. Everyone would stand side-by-side in a circle and one person would whisper a message in the ear of the person next to them. The message would find its way around the circle until the last person announced it to the group. Most of the time, the message was completely different for the last person than it was for the first.
In the real world, messages are lost in translation all the time. From a curt text message with an indecipherable tone to an email that unintentionally conveys humor, what we say can sometimes be easily misconstrued. This phenomenon can also be applied to company conference calls when earnings are discussed with investors. But there is a way to cut through the talking points to get to the real substance.
From transcript to analysis
More and more in the world of investing, technology and big data are revolutionizing the way information is processed and decisions are made. We’ve talked about how we leverage big data to cut through the noise, analyzing key economic data alongside consumer behavior online to help guide our investing philosophy. But, alongside consumers, there’s another group that can offer insights into important trends: CEOs and CFOs.
By using automated techniques to read the transcripts of company conference calls, we can identify the topics that company managers consider to be important to their business.
And rather than just selecting a handful of calls to dial into, these tools enable us to do the equivalent of listening to every conference call, understanding what management said and putting that in context both historically for the firm and comparatively across the rest of the market.
Let’s walk you through an example using data from last quarter’s conference calls.
While Greece and the European Central Bank’s quantitative easing program are two headline-dominating topics, we found that the most recent conference calls haven’t touched on these subjects. In fact, our research found that
U.S. executives spent less time talking about Greece and Europe over the past several months than at almost any time since 2012.
Frequency of the word “Greece” in conference calls
(Survey of 2,000 Firms)
Frequency of the word “Europe” in conference calls
(Survey of 2,000 Firms)
This indicates to us that perhaps while Greece and Europe are the focal point of the financial markets, CEOs and CFOs are focused on other issues and don’t see it affecting their business results.
So what are they talking about?
In the most recent round of conference calls, the word “WolfCamp” was used quite frequently. WolfCamp is a huge shale energy field. As you can imagine, shale energy has come under threat as oil prices have dropped, but executives are talking about it again, suggesting resilience in the fracking boom. Here’s what that jump looked like:
Frequency of the word “Wolfcamp” in conference calls
(Survey of 2,000 Firms)