David Foster

The Clarity Clue

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A clue to the future performance of a company may be found in the literary style of the CEO’s annual letter. That’s the opinion of Laura Rittenhouse, head of an investor relations consulting firm, who has studied this topic extensively.

A study found that when the letters are analyzed for clarity versus jargon, shares of bottom-ranked companies lost more than 18 percent of their value in a two-year period ending in 2002, compared with a 12.7 percent drop for the top-ranked companies. More recently, another Rittenhouse study focused on newly-appointed CEOs and their content scores versus those of their predecessors. For the group with the highest gains in content scores, stock prices increased an average of of 28.4% (in the year after the new CEOs were named) versus an average decline of 10.5% for the ground with the greatest declines in content scores.

The usual cautions about cause and effect analysis–correlation is not causation, the direction in which the arrow of causality is pointing is not always obvious–of course apply. Nevertheless, this is interesting.

Here’s a presentation which provides a little bit of detail on the Rittenhouse analysis method. Ms Rittenhouse quotes Orwell:

If thought can corrupt language, then language can corrupt thought

…and offers her own version:

If language determines actions and results, then corrupt language will lead to debilitating actions and unsatisfactory results.

See also The Edifice Clue, The Harvard Indicator, and Readin’, Writin’, and the Business Shtick.

See also this comparing writing at J P Morgan in 1933 and in 2006. (Although I thought Jamie Dimon’s letter in the recent annual report was pretty good–not sure what the Rittenhouse analysis process would have to say about it.)

Agflation Watch

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Financial Times (4/24) has an interesting article titled commodities boom drives up land values. In the UK, farmland prices have risen 40% over the past year. There is at least one UK investment fund dedicated to the purchase of farmland, and the operation of farms, on behalf of investors. In the Ukraine, prices for the best farmland are expected to double over the next year. And in Serbia, there’s an increase from of more than 40% over the past year. Farmland prices have been going up significantly in the US, too, although the FT article doesn’t mention any numbers.

On the same page, FT has another article: EU warned over cut in number of pesticides. Excerpt:

European Union plans to restrict chemical use by farmers in Europe could reduce harvests at a time of global food shortages, farmers, academics, regulators and pesticide makers warned on Wednesday.

Crops such as apples and hops could no longer be grown on the continent if EU draft plans are not amended, they said. Wheat and potato yields could drop by almost a third, according to industry-sponsored research.

and

Research commissioned from Italian consultancy Nomisma forecast drops in yields of about 30 per cent by 2012. The EU would lose its self-sufficiency in wheat, potatoes, wine and cereals.

(Here’s a letter to the editor from someone who strongly disagrees with the thesis that these pesticide controls will be devastating to European agriculture.)

Via the interesting site Gongol, here’s an article about the growing shortage of fertilizer, with comments by Norman Borlaug.

As a counterpoint, both John Hussman and Anatole Kaletsky argue that the current commodities situation has some attributes of a bubble.

Microtargeting in Politics

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Eugene Burdick, best known as co-author of Fail-Safe and The Ugly American, also published (in 1964) a novel titled The 480, dealing with the use of advanced computer techniques to influence election results. (The number “480” refers to the number of demographic categories into which the analysts have divided the American electorate…the book was inspired by actual work done by a company called Simulmatics on John F Kennedy’s campaign.) The computing in the novel is done by an IBM 7094 (portrayed in slightly sinister terms), a machine which has less processing capacity than the computer on which you are reading this, but which looked a lot more impressive.

I was reminded of this book by a Washington Post article on microtargeting in contemporary politics. The idea is to identify groups of voters like “education-obsessed Hispanic moms” in New Mexico, who respond favorably to mailings about the No Child Left Behind law. Or, on the other side, Democrats microtargeting “Christian Conservative Environmentalists.” The article says that microtargeting has been enabled by cheaper and more powerful computer hardware and by the availability of more information about individuals and zip-code-level demographics.

Another example given involves the use of microtargeting by the Romney campaign. Romney voters were well-represented among what the article calls “‘country-club Republicans,’ well-off folks who care deeply about financial issues that favor their portfolios. TargetPoint, a political consulting firm, identified another group, one “not quite sold on Romney but susceptible to a pitch on his economic policies. These were people who didn’t make as much money as the country-clubbers but displayed consumer habits similar to those of the snob set — drove sport-utility vehicles, went to the theater, bought natural foods.”

I’m not sure whether term “snob set” comes from the WP writer (Steven Levy) or from TargetPoint, but would observe that people who drive SUVs, go to the theater, and buy natural foods represent a substantial part of the WP’s subscriber base. Levy also suggests that “the Romney camp has sorted out individuals whose striving makes them vulnerable to a pitch that, at least with their current financial status, is at odds with their economic interests.” Maybe some of these people are actually intelligent enough to think in terms of their expected future economic condition, as well as their present one, and to want to preserve economic opportunity, for others as well as themselves, rather than playing zero-sum games based on a static view of economic stratification.

Anyhow, The 480 is an interesting and well-writen novel.

P J O’Rourke Visits an Aircraft Carrier

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…and is inspired to some thoughts about conservatism and John McCain.

I’m surprised that neither O’Rourke nor the highly literate editors of the Weekly Standard thought of including this 1851 quote from John Ruskin:

For one thing this century will in after ages be considered to have done in a superb manner and one thing I think only. . . it will always be said of us, with unabated reverence, “They built ships of the line” . . . the ship of the line is [man’s] first work. Into that he has put as much of his human patience, common sense, forethought, experimental philosophy, self control, habits of order and obedience, thoroughly wrought handwork, defiance of brute elements, careless courage, careful patriotism, and calm expectation of the judgement of God, as can well be put into a space of 300 feet long by 80 broad. And I am thankful to have lived in an age when I could see this thing so done.