Motley Fool Hidden Gems Investing - Quarterly Conference Calls: Morning vs. Afternoon

Episode Date: January 5, 2021

When a company in your portfolio holds a conference call with analysts, is the call in the morning or afternoon? As best-selling author Dan Pink writes in his book When: The Scientific Secrets of Perfect Timing, the answer matters more than you think. Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. With The Motley Fool Money Extra, I'm Chris Hill. Dan Pink has written several best-selling books, the most recent of which is entitled When? The Scientific Secrets of Perfect Timing. I talked with Dan about the book in front of a live audience, and while some of the book deals with things like sleep patterns and physical health, at least one section should be of interest to every investor. Part of the research Dan Pink studied when he was writing the book has to do with the quarterly conference calls that public companies hold when they release their earnings reports. The findings, that the tenor and tone of calls held in the afternoon are much more negative than conference calls held in the morning.

A lot of the insights that we have about behavioral science for a long time, and this is legit, came from things like we assembled 71 undergraduate students. We put 35 in this condition, we put 36 in this condition, and we ran an experiment to see what the difference was. And that's cool. That's the scientific method. What's happening now is that big data is allowing scholars of all kinds to find really, really interesting insights using massive, massive amounts of information. I mean, just spectacular.

And so, that's how this, so that's the study that Chris is talking about did this. So, as you guys know, there are transcripts of these conference calls for companies, all right? Public companies, there are transcripts. The transcripts are publicly available. There is now software out there that evaluates text. And one of the things that it does, even at its very primitive stages right now, is it can measure the emotional valence of words. So, it can take a word like somebody writes in a tweet, I'm bummed out. Oh, that's kind of negative.

I'm pumped about X, Y, or Z. That's positive. And so you can put these giant amounts of text in these programs, and it will measure the emotional valence of the words. And then you just plot it against anything, but you plot it against time of day, and you see these patterns of mood over the course of a day. So what they did with this case is they took 26,000 calls, transcripts of 26,000 conference calls, through the text into one of these programs. And what they found, exactly as Chris is saying, is that calls in the afternoon were more negative, more irritable than calls in the morning. Even, and here's the kicker, and my editor and I got into a battle over this about whether I was allowed to italicize this phrase. Even when you control for the fundamentals, all right, so it didn't have to do, it's not simply that companies reporting bad earnings scheduled their calls in the afternoon.

It was that even if you control for what they're actually reporting, calls in the afternoon were negative. And here's the kicker. It even, to the point, had a temporary effect on the stock. That is, the stocks were mispriced in response to this negative sentiment. So even stocks that had no fundamental reason for dropping dropped in the short term because of the afternoon call. Just a little something to keep in mind the next time a company in your portfolio is holding their quarterly call. I'm Chris Hill. Thanks for listening. We'll see you next time. you