Writing tips for market analysts

The choice of words used gives the reader an impression of how the analyst thinks, Jeremy Bolland notes in Writing Securities Research: A best practice guide , second edition ( > www.wiley.com ). It may be true that equity or credit analysis is part-science and part-art, but readers would probably be more easily convinced if it at least appears that the analyst has used scientific and measurable methods to reach his/ her conclusion, the author advises.

Direction and degree of movement

Take, for instance, the direction and degree of movement (whether in terms of absolute or relative changes in actual or estimated sales, earnings or valuations), which are common themes in analysts' work. Here, the analyst needs to make clear what is being measured and what benchmark any rate of change is being measured against, instructs Bolland.

Adding, therefore, that a statement such as ‘‘the company's results rose by 20 per cent'' is meaningless, he insists that the analyst must clarify what the results relate to (for example, sales, earnings before tax, net earnings as absolute results or perhaps as margins); the period to which they relate (for example, the month of December, the quarter/half/year ending December); and the period with which the results are being compared (for example, month-on-month, year-on-year). “Incidentally, if the percentage change in net earnings does not correlate to the percentage change on a per-share basis, the analyst would need to clarify what has happened to the number of shares during the year to explain the difference.”

Fraction or percentage

The author recommends the use of fraction or percentage terms, rather than absolute numbers, for describing movements and directions. Words like ‘a quarter' or ‘25 per cent' are more meaningful and easier for the readers or audience to remember than absolute numbers like ‘1,67,81,250 compared with 1,34,25,000,' whatever the units being compared, he reasons. For, the absolute numbers can be recorded in tables.

A common confusion is between percentage movements and percentage-point movements. “For example, a move from 2 per cent to 3 per cent is either a 50 per cent move or a one-percentage-point move.” Another oversight is in the realm of preposition — as in ‘falling 1 per cent' vs ‘falling to 1 per cent.'

When talking of values, the currency used must be clearly stated, cautions Bolland. While the US reader might assume, for example, that $ refers to US dollars, Asia Pacific readers might be thinking in terms of Hong Kong, Singapore, Australian, New Zealand or New Taiwan dollars, he reminds. “Confusion may arise where, for example, an American or global depositary receipt is quoted in US dollars, but earnings are reported in a different local currency. Similarly, some Singapore-listed companies that aren't national companies are quoted in US dollars, and Chinese ‘H' shares are quoted in Hong Kong dollars, although earnings are generally reported in renminbi (RMB).”

Choice of vocabulary

An educative section in the book is about the choice of vocabulary to describe movement and performance. Words listed to describe ‘action' are change, revise, amend, tweak, raise, increase, upgrade, lift, climb, rise, inflate, improve, expand, enlarge, add, gain, balloon, surge, escalate, accelerate, advance, appreciate, strengthen, creep up, erode, dilute, recede, weaken, diminish, contract, subside, shrink, and prune.

Equally important is the section on ‘‘words to avoid or use carefully.'' In this section are ‘soggy' words' such as ‘feel,' ‘believe,' ‘bet,' ‘gamble,' ‘guess,' ‘suppose,' ‘speculate,' ‘conjecture,' and ‘suspect.' Conceding that these are good English words which when used properly can be effective, the author observes that in an analyst's report these words can often give the impression that the analyst is merely basing his views on hunches (or perhaps even inside information) rather than on solid facts and analysis.

“Care should be taken with words such as ‘certainty' (there's no such thing, according to Benjamin Franklin, except for death and taxes), ‘actually,' ‘in fact' and ‘obviously' (which sounds condescending; in any case, nothing is ever obvious in this business).”

Avoid jargon and cliché

Don't miss the box item about business jargon and clichés, which can get professionals bored. Top in this list are phrases such as paradigm shift, strategic fit, technology platform, mindset/mindshare, face time, client interface, integrated business plans, legacy system, multi-user functionality, results-driven, client-focused, and best in class.

The ‘ever-evolving' list includes also: core competencies, low-hanging fruit, blue-sky thinking, leverage the franchise, gain traction, add granularity, drill down, execute on key deliverables, get up to speed, hit the ground running, level the playing field, shift the goal posts, give someone a heads-up, take risk off the table, raise the bar, keep your eye on the ball, key takeaways, on the same page, in the trenches…

To emphasise the need for ‘clarity in communication,' the book cites examples from www.plainenglish.co.uk – such as this hilarious response of Virgin Trains to a customer's query as to why its Web site did not include a particular ticket price: “Moving forwards, we as Virgin Trains are looking to take ownership of the flow in question to apply our pricing structure, thus resulting in this journey search appearing in the new category-matrix format.”

The author makes an apt reference to an article by Jonathan Guthrie in FT, which gives an example of a bank trying to explain to shareholders a $10 billion write-down, saying that it had ‘revised key input parameters of the models that are used to estimate lifetime default… for sub-prime mortgage pools.' This, as Guthrie quipped in layman's terms, meant ‘that Billy-Ray in Redneck, Florida, was no more likely to repay his home loan than to sell his assault rifle and take up tai chi.'

Suggested study for analysts.

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