Motley Fool Money - What to Know About a Stock’s Workforce

Starting point is 00:00:00 What's to know about your stock's workforce and the changing nature of the S&P 500? That and more on this Saturday personal finance edition of Motley for Money. I'm Robert Brokamp, and this week I speak with Dr. Ben Zweig, the CEO of Revelliol Labs, about the insights that could be gleaned from a company's hiring, firing, pay, and other factors. But first, let's discuss some items that caught my attention from last week. You know, while we talk a lot about investing in individual stocks here at the about full, we're also big fans of index funds. We have them in our company 401k, and they're among the most popular choices. And the index that is most tracked by index funds is the S&P 500. It can be an

Starting point is 00:00:47 outstanding investment to buy and hold for decades, but the index itself changes all the time. Sam wrote, writing on his ticker substack, that's spelled T-K-E-R, cited research from Goldman Sachs, which found that since 1985, 20% of the index's constituents turn over every five years on average. And the amount of time spent in the index is getting shorter. Back in the 1970s, the average company lifespan in the index was 29.3 years, whereas it has been 18.3 years so far in the 2020s. In fact, six of the magnificent seven have been added in the past 25 years. As Sam wrote, quote, in any given period, there are stocks driving the overall market higher. And often, many of these market leaders eventually stumble and underperform. But other stocks always emerge to take the baton and extend the market's very long

Starting point is 00:01:37 trend higher. End of quote. For our next item, we'll remind you that this is an election year. And a few recent articles have pointed out that the U.S. senators who will be elected or reelected this year to six-year terms will likely have a say in how Social Security's shortfall will be resolved. Currently, benefits are funded from taxes paid by workers, employers, and about half of Social Security beneficiaries, with arrests coming from a trust fund established almost a century ago. However, that fund could be depleted by 2032, a couple of years sooner than expected due to several factors, including a slowdown in employment, a reduction in immigration, and tax breaks in the one big beautiful bill that will result in fewer beneficiaries paying taxes on their benefits. Without a fix, the benefits will be cut by 20 to 25% when the trust fund is exhausted. What could that fix be? Well, likely it will be some combination of higher taxes, later claiming ages, means testing benefits, and or changes to the benefit formula.

Starting point is 00:02:36 What changes might be most palable to you? Well, you can see the options and their impact by taking the Social Security challenge from the American Academy of Actuaries at actuary.org forward slash social security. And before you vote this year, find out what changes the candidates plan to support. And now we come to the number of the week, which is 2.7%. That's the most recent reading for the Consumer Price Index announced this past Tuesday, indicating that while inflation isn't accelerating, prices are also not coming down. And as pointed out in an article from the editorial board of the Law Street Journal, many Americans are feeling the pinch because some everyday essentials,

Starting point is 00:03:15 such as shelter, food, medical care, and energy, have experienced. price increases above the rate of overall inflation. Meanwhile, wage growth for many workers has stalled, as has the job market itself. According to a recent survey of consumer expectations from the Federal Reserve Bank of New York, the perceived probability of finding a job in three months if one's current job was lost fell to 43.1%, the lowest reading since the survey began in 2013. Thanks to lower interest rates and more tax breaks, a lot of stimulus will be flowing into the economy this year. Hopefully, it will result in wage and job growth without nudging up inflation. We shall see. Next up, what you can learn from the employees of the companies in your portfolio

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Starting point is 00:05:15 I spoke with Dr. Ben Zweig, a professor at NYU and the CEO of Ravello Labs, which provides workforce analytics for employers and investors. He's also the author of a new book, Job Architecture, building a language for workforce intelligence. This is just a portion of our discussion, so make sure you go to YouTube to see the whole conversation when it's available later next week. In this segment, we discuss how knowing a company's workforce can be a question. make you a better investor. Welcome, Ben. Thank you. Thanks for having me. If you don't mind, let's start with an example from your book in terms of how you were analyzing what was going on at meta and anticipating how they were going to change their strategy. Yeah, that was a wild story.

Starting point is 00:05:54 So we had done this analysis with a journalist at Bloomberg, the name is Matt Boyle. He runs the column called Workshift. It's about the future work. And we, together with this journalist, we discovered that right after Facebook had done the rebrand to Meta, they had been hiring all these all these people that were skilled in VR and AR, you know, all these kind of metaverse types of people, you know, people that were skilled in Metaverse technologies. And what we had seen in this collaboration with Bloomberg was a reversal of that. So at Meta, they had basically stopped hiring people with VR and AR skills, like immediately, you know, that just completely dropped off. And we saw this and we were like, wow, you know, this is a huge reversal of their strategy. It's a big deal.

Starting point is 00:06:39 So we wrote an article about it. And then we heard from the meta talent intelligence team and their public relations team, and they had said, hey, this is not coming from us. Like we didn't announce this. You know, we are going to contest these findings. So we said, oh my God, okay, you know, maybe this is wrong in some way. Let's check it out. You know, what are the keywords that you're using?

Starting point is 00:07:01 Maybe let's, you know, try to align so that our trends look the same. and we had worked with them for a little while and basically got the same trend. And we thought, this is a real thing. And, you know, the ability to basically categorize these things into skills and activities can uncover a very large business shift. And it turned out the same way. So we said, hey, you know, we are sticking with it. That's journalistic integrity.

Starting point is 00:07:25 You know, we're not going to back off. And we didn't back off. And a week later, they had made a public announcement that they were retreating from their VR strategy. So, you know, we got vindicated, but it was pretty scary at the time. I don't know if you realize how intimidating you are in the media, but, you know, we felt it. I'm not personally, but I could see how that would be a little scary. Yeah, so that's a great example. And the one hand, like, it's so obvious, right?

Starting point is 00:07:51 Most companies do spend most of their money on their workforce. Like, you, of course, should be looking at what's going on, but it's difficult. You point out in the book that there are four key pieces of data that people should look at, employee profiles, job postings, employee perception, and salary benchmarks. And I don't know if you want to talk about each of those or just them in general in terms of what they can tell you about a company. Yeah, the reason why I think of those four segments is really just because that's the data that's available.

Starting point is 00:08:20 So it's not that these are, you know, the comprehensive set of information that we'd like. I mean, ideally, I'd love to get data on employee performance, but performance ratings are just not out there. So that's just a non-starter. So this collection of data is really based on what exists and what's feasible to collect. But with that, you can identify a really good set of what's happening at a company that you have no affiliation to. And for investors, investors are in the business of understanding companies that they don't have an affiliation to. So we can't really be looking at internal HR data, although that's got things like employee performance that would be nice to have.

Starting point is 00:08:58 But, yeah, the most powerful source of information is online profiles. That can tell you start dates and dates where you get the full workforce dynamics of a company. You can see how many people they have, how many people are coming in in a given time period, how many people are leaving in a given time period. So the full stocks and flows of employees and how that breaks down by various employee characteristics, by occupation, geography, skill, seniority. So then with that you can see, you know, what is the attrition rate, let's say, of some key role? And let's say a bunch of salespeople are quitting at SAP.

Starting point is 00:09:34 Maybe you want to short their stock. Maybe they're not going to hit their targets next quarter. So that's a really good indication of, you know, who's coming, who's leaving. So that really comes from profiles. From postings, you get a forward-looking proxy for expected hires. Of course, you get the actual hires from the inflows. But you get a good proxy. You know, if a company has a hiring freeze or if they're hiring for a certain key role,

Starting point is 00:09:57 You know, that meta example was really from postings. We can see, you know, what do they want? How is their demand trending for a certain key role, key skill, something like that? Employee perception, I think, is kind of the most underrated one. And there you can see, like, what people are writing about how they feel about a company. And employees know a great deal about what's happening inside a company. So if you see that business outlook is trending up or trending down, that tells you something about what is the inside scoop of what's happening at this company.

Starting point is 00:10:24 How do people feel about, you know, an upcoming merriment? merger or a new return to office policy or something like that. You get the real inside view. And then I think it's important to list out pay as distinct from all of those because, you know, we can get data from how much people make from a variety of sources. And now with pay transparency, with new legislation around pay transparency, that's so much more out there. And, you know, prices contain so much information about, you know, the relative bargaining power between workers and firms and just how those are being shifted from one role to another, what it implies about retention.

Starting point is 00:11:02 So there's so much information about how much people make and what that tells you about a company's strategy. So I think that's tremendously powerful. There are also more tertiary data sets out there. There's layoff notices. There's immigration filings. There's freelance platform data. There's a lot out there.

Starting point is 00:11:18 But I'd say those four are really the biggest to pay attention to. Let's move on to how this information can help. workers. You wrote in the book, Finding a good employer is like finding a spouse. It doesn't happen overnight. You have to kiss a lot of frogs. Yeah, you definitely do. Just to belabor that analogy to a point of usefulness, perhaps, if you live in a very small town, I think there was some data on this that, you know, shows kind of the generational split of where people found their spouses and found that in our sort of great-grandparents era, something like 30% of people, like, I'm butchering this metric.

Starting point is 00:11:53 It was in Aziz Ansari's book, Modern Romance, which is excellent, but documents that, like, some extremely high share of marriages were people that met in their own building. And then extending it, sitting outside of that was like, you know, in their very narrow neighborhood. And now, of course, you know, people find partners from all over. So it's a much more distributed market than it's been back when people lived in small villages. And, of course, buildings are only relevant to large urban centers. But I think the point I want to make here is that, you know, a lot of people in labor markets, candidates, job seekers have a sense of what are the contending occupations from a very, very narrow viewpoint. When people go out to the market and start looking for a job, maybe after high school or after college, they don't know the occupations that even exist out there. You know, I think a lot about occupations, and I still discover new occupations that I didn't know existed.

Starting point is 00:12:49 But if you are from a rural area, there's a very small chance that you've ever heard of what a DevOps manager does. These are things that are obscure even as you get deeper and deeper into it. And what ends up happening is that workers select into occupations based on what their parents do, what their relatives do, what their friends' parents do, what their parents' friends do. This is just like what they see. And that could be extremely narrow. So their sense of what's out there is very, very limited. If you take it even further, I have a four-year-old daughter. And if you ask her what she wants to be, you know, there are only a few jobs that she's heard of.

Starting point is 00:13:31 And it's like ballerina or zookeeper or astronaut. You know, these are a very small share of the global labor market, to say the least. And that expands as we grow, but not that much. So I think, you know, what's really required is a lot more visibility. a good source of information about what are the occupations that are out there and details about those occupations. You know, how much money do people make? How long do they stay here?

Starting point is 00:13:56 What kind of options does it open up when you exit? How do people like? You know, what's the work-like balance like? What are the other types of workers that you'll work with? Is it social? You know, these are things that people can get a sense of that would be very valuable right up front, right up front in their job search. I don't know if you have an opinion on this, but obviously people are looking for jobs

Starting point is 00:14:16 based on what they see on whatever, LinkedIn, Indeed, or whatever. Given your experience in your analysis, if you were to look at a job description, how much would you say like that? Yep, that's 100% accurate? Or do you feel like, eh, that probably like, generally most people end up doing only 70% of what they thought they were doing when they got that job? Yeah, this is a huge question. So I think this is one of the most important questions in the age of AI.

Starting point is 00:14:43 I'll get to why I think that's such a critical point. But just to kind of validate your presumption, you know, when you enter a job, there's some set of information about what you're expected to do. So these are the responsibilities. Then you start, first of all, it may have been wrong from the beginning. It may have been written by someone who just doesn't really know or has a very vague sense of what they want people to do. Or maybe, you know, as a candidate, you are good at some parts of it and maybe bad at other

Starting point is 00:15:13 parts of it and they decide, oh, let's kind of, you know, reconfigure this job to match the profile of the candidate. You know, that happens all the time as well. But I think what's changing most rapidly is the extent to which jobs actually transform after you start. So let's say it was well written and it was purposeful. But then you start and a few things change. One is that the demands on the business change.

Starting point is 00:15:40 So, you know, for me, you know, in my firm, you know, we have, I don't know, 70 people or so, you know, we're a relatively small company. And the demands on the business change every day. You know, every day, there's a new client request. And they say, hey, can you guys do this new thing? And we say, well, you know, for the right price, we'll make it happen. And then, you know, figure out who to staff on this. And then we go around and say, hey, who's got the bandwidth? with, the skills, who do we trust, if it's high stakes or low stakes, and then we figure out

Starting point is 00:16:16 who should do what. So we are kind of reconfiguring what people do based on the changing demands of the business. There's also changes on the labor supply side of it. Maybe someone quits. And, you know, when someone quits, you know, we have to figure out who can take over their workload, who can maintain whatever they were maintaining, who can work on the projects that they were working on. Or maybe we find out that someone we hired is just extraordinary and they've automated something

Starting point is 00:16:43 or they've taken on some new work or something like that. Or maybe, you know, someone starts doing something and they say, hey, you know, I actually really don't like this work. I'd rather be working on something different. Can I move teams? Can I move projects or I don't like working with this person or whatever it is? But these things change all the time because of changing the bands of the business, changing composition of the employees that you have.

Starting point is 00:17:07 You know, one point of making the book is that it's really the role of managers to be the liaison between the needs of the business and what the workers can provide. And that is management in a nutshell. You know, management standing on one foot is job reconfiguration. And now with AI, you know, one thing to say about AI is that, or really any technology, is that it does not automate jobs wholesale. It automates components of jobs. It automates tasks.

Starting point is 00:17:34 what firms need to do and workers need to do is reconfigure their workload to adapt to some parts of that workload being automated. So that's something that has increased the need to reconfigure the work activities and the job. One argument that I make in the book is that this reconfiguration is trackable. We should be able to see what people do today, what people do a year from today, and how that changes, how that transforms. We have all this information about what people do.

Starting point is 00:18:04 And being able to track that leads us to be able to manage it. The old adage goes, it isn't what you say, it's how you say it, because to truly make an impact, you need to set an example and take the lead. You have to adapt to whatever comes your way. When you're that driven, you drive an equally determined vehicle, the Range Rover Sport. The Range Rover Sport blends power, poise, and performance. Its design is distinctly British and free from unnecessary details, allowing its raw agility to shine through.

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Starting point is 00:19:11 Over my podcast and career, I've gone several episodes on the connection between fiscal and physical well-being. The evidence is clear that healthier people are wealthier and the other way around. The causes and effects go both ways. Which brings us to a recent study from researchers at Griffith University and the University of Queensland in Australia, which found that a regular routine of sitting for 30 minutes and standing for 15 minutes while working, reduced back pain and stress and improved concentration in productivity. As someone who has a desk that could be lowered and raised, I can attest to the benefits of going up and down throughout the day,

Starting point is 00:19:46 so I encourage you to give it a try. And it doesn't require a new desk. Search online, and you'll find plenty of clever solutions people have come up with to be able to work while standing. And that, my friends, is the show. Thanks for listening and thanks to Bart Shannon, the engineer for this episode. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear.

Starting point is 00:20:12 All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Robert Brokamp. Fool on everybody. You know.

Motley Fool Money - What to Know About a Stock’s Workforce

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