What Is the Do-Say Ratio?

We believe that a do-say ratio embodies the idea that actions speak louder than words. And while most investing-related formulas often feel complex, to us this concept is pretty straightforward. The do-say ratio compares how often — in an investor’s opinion — a company did something it said it would.

Here’s why the do-say ratio can be an important concept for investors to consider:

When a company says it’ll do something, investors may make decisions to either buy or sell based on those promises. In some cases, its stock value can be impacted as well. The do-say ratio is one way our Portfolio Managers assess a company’s prior accountability, as we track if and when they followed through with their messages and statements. Prior performance is no guarantee of future results; however, to us it can paint a pretty telling picture of whether a company has historically done what it’s said it’ll do, or if its leadership team is prone to overpromising and under-delivering.

Why having a high do-say ratio can be important

The higher we measure a company’s do-say ratio, the more we believe the company has delivered in the past on what was promised. On the other hand, if we measure a lower do-say ratio, that indicates to us that a company had a track record of not following through.

For example, if we measured a 1:1 do-say ratio, that would indicate that for every statement or promise made that we had measured, the company took appropriate action in the past. A 1:3 ratio, however, would indicate to us that for every three statements made that we had measured, the company followed through on one of them in the past. Keep in mind that this isn’t an exact science (again, it’s much less complex than most financial ratios), but we believe it can be good for getting a general sense of a company.

Here are three reasons why we believe companies should be aiming for a high ratio.

Investors like predictability.

The market is reactionary, meaning it’s often influenced by how investors perceive things like geopolitical conflict, natural disasters, economic policy changes, and corporate actions. 

Sudden changes or unexpected events often “spook” investors, which may lead to emotionally-charged movements in the markets. On the other hand, stability and predictability tend to make investors feel safer with their investments — meaning they’re usually less likely to stray from their long-term strategy or make impulsive decisions.

When a company has a higher do-say ratio, we surmise investors may view their actions as being more predictable. If the company has indicated it’d like to achieve a certain goal, we believe its next moves would often likely be in support of that goal — hiring more workers, acquiring a new business, expanding its offerings, etc.

It can build trust in leadership.

When a company delivers on its promises or goals, to us this is an indication that its leadership team is working as it should. Having capable and forward-focused leaders often motivates employees to perform at a higher caliber, since they should have greater trust in the company and clarity on its mission.

This can also instill more confidence in investors that the company is functioning properly under effective leadership.

It can create accountability.

Nobody’s perfect, and unforeseen circumstances happen. But we think a do-say ratio holds companies accountable over time, and for us it can help our analysts identify a history of potential deceitfulness — or, on the other hand, a longstanding commitment to integrity and transparency.

Veering off-course will happen from time to time, but a do-say ratio is about establishing a pattern of behavior for analysts and investors to consider.

So, what happens if a company garners a low do-say ratio?

When companies get a reputation for saying one thing and either not following through or doing something else, it can create problems for the company itself and its investors.

Companies with a low do-say ratio may:

• Attract suspicion and mistrust: People want to believe that what a company says is true, but if its history says otherwise… people may take future statements or promises with a grain (or heaping spoonful) of salt.
• Appear less stable: Again, investors like stability and predictability. When a company goes against its word, it can suggest that the leadership team does not have firm control over the business — essentially compromising its ability to execute effectively and control its own destiny.
• Cause speculation: If a company’s actions don’t align with their statements, it may lead investors to question what’s going on internally to cause these misalignments. This may make a company look like they’re hiding something from investors.

Being a more informed investor

Publicly-traded companies are required to disclose detailed financial information, which they publish each quarter. In addition, many company leaders openly share information about their future roadmap, goals, or fundamental changes to their operations.

As an investor, this information may impact your decision to either buy, sell, or avoid certain stocks. We encourage you to not only focus on what’s shared during a company’s quarterly earnings report or from the desk of a CEO, but to keep track of a company’s actions (or inactions, as the case may sometimes be) as well.