Some thoughts on investment communication
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The desire to make one's life better is one of the most primal. For many this to a great extent is about becoming wealthier financially, whether out of desire or necessity. It is no wonder then that more has been written and spoken about investing and finance than perhaps any other topic.
I have in the past noted that the two key powers needed to be a truly successful professional investor - fund manager - are those of prediction and persuasion. Being able to make money for yourself is not enough; you must also be able to persuade other investors to invest alongside you, to pass you their hard earned money to manage, and to pay you for the priviledge.
The combination is naturally a rare one, the best example is in my view The Oracle of Omaha Warren Buffett, whose annual letters are insightful and well written. And he's an ok investor too!
Investing is a zero sum game - for every investor who beats the market, there is one necessarily who gets beaten. You cannot all be above average. In fact, given that fund managers get paid, often excessively, it is a negative one. Statistically, around two thirds of funds underperform.
Rarer still are those who can consistently beat the market - those who are skilful. That these few might also be good communicators is certainly not a given.
In fact, to some extent, prediction and persuasion skills are mutually exclusive. Beating the market requires dispassion, the ability to analyse emotions that drive prices, not be subject to them. Good communication on the other hand requires one to be able to connect on an emotional level, to convey passion. Perhaps, therefore, the most successful investors are those who can fake passion convincingly. We know what people like that are called...
As a youngster my English was poor. Nor was my common sense much better. When confronted during my school entrance exam at the age of 11 with the instruction to Write about something interesting that has happened in your life recently, I should have rejoiced. Just days earlier I had witnessed our family's golden retriever giving birth to seven pups. To communicate that experience with both passion and eloquence would have required little skill. Instead, I wrote about cats, creatures we had never owned and which our family rather haughtily detested. My mother was livid. Fortunately, I aced the maths exam and was offered a place.
My English abilities however failed to improve much and I got a 'C' in English Language O Level. Moreover, for most of the early part of my career in fund management I struggled with communication - written and spoken. During one big investment meeting I actually lost the ability to get any words out - most embarrassing.
I mention these episodes not because I want to self indulge but because things eventually changed. Moreover, these changes had a big influence on my abilities as a communicator and my views on how to be a good one. Having, when I was based in Singapore, stepped away from the fund management industry for a few years, I was finding it hard to get back in. A friend suggested that to raise my profile I write an article about investing and send it to one of the regional newspapers. The editor at the South China Morning Post loved it, and asked if would I write a monthly column for their Sunday edition.
I had finally found something I knew and enjoyed writing about. Several columns later I got employed on the back of them by a major fund management company as Asia Strategist, ostensibly a communications role. Oh, the irony! Within a couple of years I was back where I wanted to be on the investment team working as a fund manager.
I will never come close to writing beautiful prose but think I managed to become half decent at investment writing. The demons inhabiting my vocal cords were also banished, though I like most still fear public speaking.
Whether in writing or speaking, it is of course essential to know your audience. Many want strong conviction, to be reassured that you have a view. For others, conveying a strong conviction is a sign that you are ignoring the many who hold different views to yours, a particularly arrogant thing to do. You cannot please everyone.
Or maybe you can.
Financial markets are very efficient, meaning that they are hard to predict. The price of a financial market instrument represents the confluence of the countless views at a particular time. Relaying with conviction the fact - yes, a fact - that being able to make a sound prediction is a rare and valuable thing that must be earned is an effective communication tool. Moreover, it is not hard to demonstrate using rudimentary maths that most of the time financial markets and their constituents follow a random walk and only rarely exhibit pattern than can be taken advantage of.
Historical comparison is also very effective. Everything that happens in this world, whether in financial markets or otherwise, is in some way a function of the past, and use of - mention of - the past goes down well with most audiences. Stories, past research papers, etc.
In two neat steps, you have satified those who only want a view, and a strong one at that, as well as those who need also to hear that you understand how hard this is i.e., how hard it is to find a mispricing that is big enough to profit from. Of course not everything in investing involves predictions; you may be just be explaining something. However, the same rules apply. Be evidence based, balanced, use stories and historical comparisons, but have an opinion.
The problem is that, at least in the case of the spoken word, only 7% of meaning is communicated through what you say. The remainder, 93%, is through how you say it - tone of voice, body language, etc. This rule, together with supporting evidence for it, was laid out in UCLA professor Albert Mehrabian's 1971 book, Silent Messages.
The conclusion therefore is that while what you say or write is key, delivery is far more so. Perhaps being able to write beautiful prose is important after all.
The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.
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