Matt Levine is a Bloomberg Opinion
columnist covering finance. He was an editor of Dealbreaker, an
investment banker at Goldman Sachs, a mergers and acquisitions
lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S.
Court of Appeals for the 3rd Circuit.
March 4, 2020
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One topic in finance that fascinates me is “body language.” Here is
meet one-on-one with the executives of the public companies
whose shares they own.
These meetings appear to be desirable
and informative, to the point that investors will pay banks
them up, and investors seem to make market-beating trades
after these meetings.
However, it is illegal for companies to give the investors
“material nonpublic information” in these meetings.
So what do they talk about?
One theory is that the company tells investors information that
is found in its public filings, and they chat about the weather and
stuff, but the investors observe the executives’ “body language”
during these meetings and use it to inform their investing decisions.
Like, the executives say “as we said in our earnings release,
we had 14% gross margins this quarter,” and that is in fact in the
earnings release so it’s not news. But if they say it confidently in a
power pose the investors buy more, and if they say it nervously while
looking to the side the investors sell everything. Body language.
One assumes (why?) that this “body language” is not itself material
nonpublic information, so there is no legal problem with the company
giving the investors access to it.
I don’t want to discount this theory entirely; I wrote once about a
big investor that dumped all its stock of a public company because its
chairman was too tan, which makes sense and was in fact a
good call. (The company went bankrupt.) Still I do wonder about it
sometimes. I assume “body language” is often a polite way to say “well
sure they say a few things
that aren’t in the public filings, but not important things.”
It is easier to draw a bright line of “telling us earnings in advance
is bad, but seeing body language is fine” than it is to say “telling
us earnings in advance is bad, but helping us with some technical
questions about how we should think about drivers of margin in our
earnings model is fine.” And no one’s in the meeting with you, so for
all anyone knows it's just body language.
Anyway here's a story about “Why
Wall Street bankers are hitting the road again” that
contains this amazing claim about body language:
During in-person meetings, Knee, who previously worked at Morgan
Stanley and Goldman Sachs, pays attention to body language and
looks out for subtle clues.
When he asks tough questions about sensitive subjects, including
compensation and sales targets, he is interested in the answers,
of course, but he also wants to see how an executive reacts to the
"You can do that on Zoom," Knee says. "But it's very hard to see
the sweat dripping down their forehead."
I have to say I went to a lot of in-person meetings as an investment
banker and at no point, ever, did I ask the client a question and see
the sweat dripping down their forehead? What? “And I see
revenue is up 4% quarter-on-quarter is that right?” “Umm, umm, umm
[looks around nervously] umm, umm, umm [breaks out in sweat] umm, umm,
umm [tugs nervously at shirt collar] umm, umm, umm yes, yes our
revenue is doing great, up 4% quarter-on-quarter, yes it sure is,
nothing wrong with that, no siree, look over there a bird!”
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