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Those in the business of detecting cognitive dissonance are seeking to understand how the judgment and integrity of company leaders can affect a company ’ s valuation over time . such as Business Intelligence Advisors in Boston , which is run by former Central Intelligence Agency investigators , are seeking to understand how the judgment and integrity of company leaders can affect a company ’ s valuation over time . Earlier this year , the CFA Institute , an international association for chartered financial analysts , published a book with the very self-explanatory title Lie Detection Guide : Theory and Practice for Investment Professionals . Laura Rittenhouse , who runs the consulting and training firm Rittenhouse Rankingsin New York , analyzes written messages , especially CEO shareholder letters , and ranks companies for wording that indicates candor and transparency versus what she euphemistically calls “ balderdash .” Examples of balderdash include the phrase “ in a dynamic operating environment characterized by unexpected events around the world ,” which appeared in the annual letter of a large bank , and “ we face stiff competition , but our future is within our control ,” from Walmart ’ s 2016 annual report . (“ When are there not unexpected events ?” says Rittenhouse . “ And no one ’ s future is completely under their control .”)
Litman , a former Credit Suisse analyst , started Valens in the very rocky year of 2009 . “ We should have had our heads examined for launching a startup venture in the middle of the downturn ,” he says . But Litman wanted to provide the kind of all-encompassing analysis that was mostly missing on Wall Street at the time . The firm has analyzed more than 20,000 earnings calls since its inception . In 2009 and 2010 , it wasn ’ t hard to find executives from banking and other industries whose voices indicated tension when they said things were getting better . Three years ago , Valens researchers observed a lot of highly questionable markers in the earnings calls of oil exploration firms , which were then grappling with low prices and excess supply . Soon after , not at all to Litman ’ s surprise , the sector nearly collapsed .
Take a statement like “ we ’ re expanding at full steam .” If executives show a sense of discomfort uttering those words at a time when the macro factors indicate an economy in decline , then we might expect , when the economy is doing well , they ’ ll say the same thing with conviction . That is exactly what Litman has found in the last couple of years : The confidence markers are strong for most large companies . Still , the bull market hasn ’ t put balderdash-detection firms out of business . supported by EUROBAK
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