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Taking Stock of Intonation

Hey friends of PondelWilkinson, let’s keep this one to ourselves: Voice analysis may become the next tool, and a good one, for predicting stock prices. Two professors from Duke think they have proved it.
 
They learned that if you listen very carefully to subtle emotional cues in a CEO’s or CFO’s voice on a conference call, you may be able to forecast, not an EPS estimate, but a company’s future stock performance.
 
Using a digital voice emotion software program made by privately held Israeli company Nemesysco Ltd., Profs William Mayew and Mohan Venkatachalam (yes, I checked the spelling twice) analyzed voice inflections from 1,647 typical quarterly conference calls hosted by 671 public companies.
 
The study monitored subtle and not so subtle vocal cues that showed either positive or negative emotional states.  They then checked the companies’ performances to learn whether earnings, stock prices or analysts’ recommendations corresponded with the cues over the next six months.
 
Voila!  When the execs were excited, the stocks responded favorably and earnings were on the rise. But the more negative the intonations, the lower the stock prices went. According to the study, which was published in the Journal of Finance, performance was most pronounced in either direction when there were questions posed on calls, making it easier for the software program to detect the cues.
 
Where can you buy the software package and how much does it cost? Sorry, you’ll have to research that for yourself.  If it’s not too expensive, please let me know.
 
I guess we just have to hope that the executives on those conference calls really are feeling what they are saying, lest we must heed the words of American poet William Carlos Williams, who wrote: “It’s not what you say that matters, but the manner in which you say it.”

 

Roger Pondel, rpondel@pondel.com
 
 

Putting Stock in an Elephant or Donkey

Following last week’s historic election, many investors are probably wondering if their obliterated 401(k)s will take a turn for the better under Barack Obama. Is your stock portfolio really better off with a Republican or Democrat in the White House? Well, frankly, trying to determine the differences between the parties using stock market data is folly…but let’s do it anyway.
 
According to a recent New York Times graphic, if you had to invest exclusively under either Democratic or Republican administrations, here’s what the results would have been.  For the sake of fairness, Herbert Hoover’s presidency under The Great Depression has been excluded.
 
In nearly four decades, a $10,000 investment in the S&P stock market index would have grown to $51,211 under Republicans. Invested under Democratic presidents only, $10,000 would have grown to $300,671 at a compound rate of 8.9 percent during the same time period.
 
Four Republicans with solid gains include George H.W. Bush, who wins out with the best average annualized return – excluding dividends – of 11%, followed by Dwight D. Eisenhower (10.9%), Gerald Ford (10.8%) and Ronald Reagan (10.2%). The Republican bell curve was weighed down by the Richard Nixon years (-3.9%) and, of course, President George W. Bush, whose number stood at -5.1% as of mid-October. Barring huge gains over the next few weeks, Bush’s number will be the worst since Hoover, a whopping -30.8%.
 
Bill Clinton’s term was the only double-digit gain among the Democrats, finishing with an average annualized return of 15.5%. The rest of the Democrats – Franklin D. Roosevelt, Harry Truman, John F. Kennedy, Lyndon B. Johnson and Jimmy Carter – ranged from 6.5% to 8.2%.
 
Whether you’re running with the Elephants or the Donkeys, I’m certain both parties would agree that a bull run would be nice during the next presidency.

 

Ron Neal, Senior Associate, rneal@pondel.com