Wednesday, April 30, 2014

Discretionary trading - is there value with talking to the CEO?

Never pay the slightest attention to what a company president ever says about his stock.

 -Bernard Baruch

The same advice applies to government officials. Of course, there will be a reaction to what a company president says and what a central bank official will say, but that will only be short-term. The real action will be with what is actually done. What are in the numbers.

The focus on words leads to a whole set of behavioral biases. There is a confirmation bias associated with listening to companies. There is a false sense of confidence from having words with the CEO. What happens if the CEO is a good presenter or a poor presenter? CEO's often get their jobs by being charming.

Does it help the valuation decision? I don't think so. Assume you have a choice between data or the CEO conversation. There is no contest on what is more valuable. How can the talk be quantified or made into a repeateable decision process? It cannot work in a systematic fashion.

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