A few years ago, our director of research Rob Spivey called me (Joel) late at night...

He urged me to drop what I was doing and watch a particular TV show immediately.

The show was called Billions. It's a Showtime production about Wall Street hedge funds. The first season is a cat-and-mouse game between powerful hedge-fund manager Bobby Axelrod and the New York Attorney General's office.

The mainstream media would tell you that Bobby Axelrod is a depiction of billionaire investor Steve Cohen, who runs Point72 Asset Management. (He also owns the New York Mets baseball team.)

In reality, the show's writer created a fictitious money manager from an amalgamation of many famous faces in the industry. Several of the incidents in the life and rise of Bobby Axelrod can be tied to situations straight out of the hedge-fund headlines.

I should know. Many of them are or have been clients of our institutional arm.

Rob specifically wanted me to watch an episode from one of the later seasons. He even pointed me to a specific timestamp. As I approached the scene, I started to pay close attention. Then, my jaw dropped...

The fund managers were using a special analytical tool to tell them whether management teams were lying on earnings calls.

Regular readers may already know what stopped Rob and I in our tracks...

The show referred to something that sounds a lot like our Earnings Call Forensics ("ECF") analysis tool. The descriptions could have come out of my own mouth.

We wrote about our ECF tool in detail back in August. In short, it uses advanced audio technology to analyze management's voices in earnings calls and compare their words against the numbers.

I have to wonder if Billions ran across our work through one of our institutional clients. Regardless, if you ever watch the show, you'll learn some of the many methods funds use to gain an "informational advantage" – knowing something that others don't.  

Some funds send their analysts dumpster diving outside corporate headquarters (this is now illegal). Others monitor shopping activity using satellite images... or even track executives' flight patterns.

It might sound crazy. But it's really just the tip of the iceberg in the investing world.

The same investors who jump through hoops to get an informational advantage are often the ones who love our ECF research the most.

For them, it's the closest they can get to seeing inside the minds of a management team. And if you can do that, you can get a better idea of what to expect from the company... before everyone else.

That's exactly how we got ahead of the market in May 2020...

Back then, folks still believed that the world was falling apart. We were deep into the second full month of what was supposed to be a one-month lockdown. There didn't seem to be an end in sight.

In the midst of the panic, we saw an opportunity. People were spending most of their days at home. Inevitably, they needed to fill that time with something.

That's when we realized home-entertainment equipment would be a huge COVID-19 beneficiary. We set our sights on Sonos (SONO). The company makes simple, high-quality stereo equipment for your home.

But what really got us bullish on Sonos was more than the macro theme. We analyzed the company's second-quarter 2020 earnings call using our ECF tool. To say we liked what we heard would be putting it mildly...

Management was confident about strong sales for portable smart-speaker system Move, one of Sonos' top products. That was a sure signal the team believed demand was mounting.

On top of that, executives were thrilled about overall booming demand. And they believed Sonos' new offerings, like its radio service, were taking off.

Using our ECF tool, we could tell that management wasn't faking its enthusiasm. The team truly believed Sonos was in a great position at the height of the pandemic.

Suddenly, it wasn't just about a company with some potential during a big shift in consumer behavior. Management knew Sonos was already riding the wave... And now, so did we.

We recommended Sonos to our Altimetry's High Alpha subscribers in our May 2020 issue. Shortly after, the market caught on. Within 13 months, we recommended closing out the full position for a combined gain of 211%.

If this still sounds like a bunch of hocus-pocus, I understand...

But there's real data behind what we're measuring.

Our institutional clients don't treat ECF like a magic eight ball. They already know these companies well. And they can pick up on a lot just by following the businesses closely.

They like this tool because it lets them double- and triple-check that they're right. It also gives them that last little nugget of informational advantage they're always chasing.

We charge hedge funds a pretty penny for that research. So individual investors probably can't afford to apply ECF to every stock in their portfolios. That's why we run this analysis on every stock for you before we recommend it in our Altimetry advisories.

But you can still implement some of the principles of ECF analysis in your everyday research, too. All you have to do is listen to the earnings calls for companies whose stock you own.

The verb there is the most important part. Listen to those earnings calls.

It's not enough to read the transcripts. Human beings have a great capacity for truth detection. But so much of that comes from hearing how people say things, not what they say.

What you find may surprise you. By simply paying attention to management's tone, you can learn all sorts of information hidden below the surface.

It can give you that last push to finally jump into a stock... or encourage you to lock in a winner before it takes a turn for the worse.

All you have to do is start listening.

Wishing you love, joy, and peace,

October 14, 2022