Writing quarterly letters to investors is a fact of life for portfolio managers, financial advisors, and other professionals in the asset management industry. Whether you operate a mutual fund that is legally required to send out a quarterly letter or you’re a financial advisor who just wants to have a regular stream of communication to keep clients updated about market conditions, the deadline for your next quarterly letter always seems to be right around the corner.
If you’re like a lot of quantitative-minded people, these letters might be the most writing-intensive task that you have to tackle all quarter. So sitting down and putting your ideas about the fund’s performance, market valuations, or macroeconomic conditions—things that you spend all day thinking about—might not be as simple as it sounds.
As a professional ghostwriter who works with clients across the financial services industry, I’ve helped many clients write or edit their quarterly letters to investors. So I’ve seen a lot of excellent letters–and a lot of weak ones, too.
Here are three things you can do to enhance the quality of your quarterly investors letters:
1. Don’t bury the lead
Almost all of the investor letters I encounter—even the bad ones—contain valuable pieces of information about developments that have affected the fund or the firm’s clients. The biggest difference between the good letters and the bad ones, though, is that the good letters focus the reader’s attention on the most important news. Meanwhile, the bad letters often hide the information that matters most to readers amid a bunch of less-important details. In journalism, we call this “burying the lead.”
Your primary goal when writing an investor letter should be to make it easy for the reader to identify the key take-aways. Don’t make the reader search for these things. The first two paragraphs of the letter and the first paragraph of each subsection are the most important parts of your letter, so these paragraphs should do a good job of summarizing the main ideas. Other high-value pieces of real estate in your letter that you can use to draw attention to these main ideas are the headline, subheader, headlines for subsections, call-out boxes, and the very last paragraph.
If you include any charts or graphs in your letter, add a descriptive headline or a caption that explains why that data matters to the reader. You don’t want to simply lay the data out there and hope that the reader figures out why it is important. For example, if you include a chart that shows month-by-month net inflows/outflows to various asset classes, write a caption that explains which asset classes have seen the biggest changes from the previous quarter. Better yet, explain what macro trends are driving those changes and/or discuss how those trends are shaping your investment strategy going forward.
2. Overcome the “curse of knowledge”
One of the things that makes writing so challenging is that, as an expert, it is inherently hard realize what non-experts don’t understand about your field of expertise. Psychologists, including Harvard’s Steven Pinker, have identified this phenomenon as the “curse of knowledge.” When you sit down to write, remind yourself that your readers don’t know nearly as much about the topic as you do. So your job is to convey your expertise in a way that aligns with your readers’ level of knowledge.
The inability to overcome the curse of knowledge manifests itself in many different ways when it comes to investor letters. One of the most common ones is the overuse of acronyms. Just because you spend all day thinking about CFPB regulations or the CLO market, don’t assume that your reader knows you are talking about the Consumer Financial Protection Bureau or collateralized loan obligations. For anything besides the most commonly used acronyms (e.g., OPEC or IRS) spell out the term on first reference and follow it with the acronym. For example, “The market for collateralized loan obligations (CLOs) experienced a high degree of volatility in the second quarter.”
3. Create a template and style guide
Writing can be a time-consuming endeavor, and it can be difficult to block off the time necessary to devote to writing a letter. Even though writing can’t be fully automated, there are several things you can do to minimize the amount of time it takes to craft an investor letter.
First of all, you don’t want to be starting from scratch each quarter. Your letter should follow a consistent format each time, with the same major sections and order. To help you get a head start on your writing (and to avoid the angst of staring at a blank screen), create a simple Word document that contains placeholders for the headline, section headers, and body copy. When you go to open this template each quarter, writing the draft will just be a matter of filling in those gaps.
Also, if your firm doesn’t have one already, you should have a style guide. A style guide is a document that outlines rules for how you will handle specific grammar and stylistic nuances in your writing. For example, do you use second quarter of 2017, 2Q-2017, or Q2-17? Do you use the serial comma (i.e., the comma that comes before “and” in a series of three or more items)? Do you address your clients in the third person (i.e., investors) or second person (i.e., you) in the letter? Having a style guide makes sure that everyone throughout the firm is handling these things consistently. It also helps you write faster because it frees your mind to focus on articulating the substantive ideas, rather than worrying about relatively minor stylistic decisions.
Investor letters are valuable tools for communicating with your clients and showcasing your expertise. Clients hire you because of your skill as an investor, not as a writer. But being able to articulate your investment ideas can go a long way in building trust and loyalty.