Making sense of investing: why clear communication matters

I can tell you exactly where I was when I got hooked on the stock market. Backyard cricket, mid-twenties, broke, and chasing a dream of being a full-time musician in Melbourne. Talk about a tough gig. Between overs, a mate told me about people he knew who'd made serious money investing in Australian lithium companies. Electric vehicles were taking off, Tesla had just unveiled the Model 3, and lithium was the word of the moment.

That was it. I scraped together about $500, opened a trading account, and dove headfirst into the mysterious, wonderful, occasionally terrifying world of investing.

Information overload, minus the clarity

The plan was simple: find the next big lithium stock, get rich, buy a better guitar. The ASX had no shortage of lithium hopefuls to choose from, so I got to work. Company websites. Quarterly reports. Investor updates. Announcement after announcement.

That's where I hit my first real roadblock. It wasn't a lack of information. It was the opposite.

These companies put enormous effort into selling the dream. Phrases like "monumental discovery" and "megalithic deposit" were everywhere. But underneath the buzzwords sat dense, technical, jargon-heavy writing that I simply could not penetrate. I told myself that if I read enough of it, I'd eventually catch on to the geology terms, the regulatory filings, the financial statements. It didn't happen. I got lucky on a few picks, but plenty of companies I thought looked good simply weren't, and I had no reliable way to tell the difference.

Browsing investor forums later, I realised this wasn't a me problem. It was, and still is, an everyone problem.

We put one announcement to the test

Take this rights issue announcement from New Talisman Gold Mines (it took me about two minutes to find an example this good). We ran it through our document review tool, and the results were rough:

A reading grade of 15 means you'd want a few years of university behind you just to follow a shareholder notice. Who is this written for?

Here's the thing: it doesn't have to be this way. Our plain language rewrite of the same announcement says everything the original says. Shareholders can buy one new share for each share they own. Overseas shareholders miss out because compliance costs outweigh the tiny amount of capital involved. Their rights will be sold and the proceeds passed on. All of it in plain English, at a reading level a busy person can manage on their phone.

The research: clarity literally pays

This is the part I find genuinely satisfying, because the academic evidence backs up what every frustrated retail investor already suspects.

• A study in the Journal of Accounting and Economics found that individual investors put more money into firms with clear, concise disclosures, and earn better returns on those investments. Plain writing shrinks the information disadvantage retail investors face.
• Research published in the Journal of Financial Economics, with the excellent title "It Pays to Write Well", found that funds with poorly written shareholder reports trade at bigger discounts. A 10 percentage point increase in writing faults per sentence meant a 2.7 percentage point deeper discount to net asset value. Bad writing shows up in the share price.
• And Loughran and McDonald's work in the Journal of Finance showed that bulkier, harder-to-digest annual filings are followed by more volatility, bigger earnings surprises, and wider disagreement among analysts. When companies write clearly, the market understands them better. Imagine that.

Even the regulators have known this for decades. The US Securities and Exchange Commission published A Plain English Handbook back in 1998, with a preface from Warren Buffett, who admitted that after more than forty years of reading company filings, "too often, I've been unable to decipher just what is being said or, worse yet, had to conclude that nothing was being said." His fix? He writes Berkshire Hathaway's annual report as if he's talking to his sisters. "No siblings to write to? Borrow mine: just begin with 'Dear Doris and Bertie.'"

If the most successful investor alive needs companies to write like humans, the rest of us can stop feeling bad about it.

Why clear communication matters

Here's the reality for any company seeking investment:

• Trust follows clarity. Investors trust companies that communicate openly and plainly. We see the same pattern in banking, insurance, and government, where technical writing is rife and trust is chronically low.
• Confusion reads as concealment. Vague, jargon-stuffed announcements create uncertainty, and uncertainty breeds scepticism. Fairly or not, readers assume that if you're hard to understand, you might have something to hide.
• Clarity is cheap insurance. Companies that communicate clearly face less public scrutiny and hold investor confidence better when the share price wobbles.

Retail investors like the 25-year-old me don't have a team of geologists or analysts on call. But collectively, we represent a serious share of investment capital. Companies that respect our time and intelligence will, the evidence suggests, be rewarded for it.

Investing is complex enough without having to decode corporate jargon on top of it. Publicly listed companies have everything to gain from better communication.