Archive for the ‘Bear market IR’ Category

Jamie Dimon: Cheer up, America!

August 10, 2011

While the markets are going crazy, Jamie Dimon, chairman and CEO of JPMorgan Chase & Co., is out visiting bank customers and employees on a bus tour in California – and giving an interview today with CNBC. His core message: Cheer up, America! That’s not bad advice for investor relations folks, either.

Dimon doesn’t mince words about shortcomings in European finances, US policy making, even the state of banking. But he comes back to a bedrock optimism:

Confidence is like a secret sauce. … Here’s what I would say to the American public in total. When you go to sleep at night think about the following before you get depressed and you see the market down 500 points: This nation is still the greatest nation on the planet. It was the first democracy on the planet. We have the best military on the planet, and God bless our veterans all around the world, those who have served and those who are serving today. We have the best universities on the planet and the best businesses. Those things that I just said – best military, best rule of law, most innovation, the hardest working ethic of all – those things are going to be here for decades. They’re not going away. The strength in the system is going to blow your socks off when it gets out of this malaise we’re in. Those things are there.

It’s good to see an executive smiling. Regardless of what you think of Dimon or big banks, he’s expressing the spirit that drives American business. It’s worth watching both pieces on CNBC. Just to feel better on another day of, as they say, volatility.

By the way, in 2008 I shared 10 ideas on doing IR in a bear market. These apply today, too, for investor relations practitioners surveying the Wall Street carnage. I’d welcome your comments or ideas on helping our companies rise above the malaise.

© 2011 Johnson Strategic Communications Inc.


IR & the coming recovery

July 28, 2009

Newsweek-It'sOverThe cover of the latest Newsweek shouts “The Recession Is Over!” A balloon and an exclamation point add emphasis, although writer Daniel Gross layers on the qualifications – making it clear the economy, even if it is at a turning point, remains in turmoil.

For my money, it’s a little premature to celebrate. I’m skeptical of newsweekly covers. And too much pain seems to be lingering – for consumers, workers, capital markets and companies. The sunshine hasn’t broken through enough to banish the dark clouds in favor of sunny days.

Yet a glimmer does shine through, here and there. Recovery will come, maybe soon. And my sense is that investors are looking for signs, seeking each ray of light, asking if good news is coming next quarter, or the next after that.

So investor relations people need to be asking: What’s our recovery strategy? How do we offer forward-looking perspective? What do we say in an uncertain time when we see hope but can’t be sure? And when do we declare recovery has arrived?

Some ideas for you to consider (feel free to add your own as comments):

… Explain the recovery strategy. Our job in IR, any time, is to help investors understand our companies’ strategies for creating value. Right now, shareholders are battered but very much looking forward and wondering what’s next. With more than a little nervousness, they want to know where we go from here.

In a piece called “Beyond Challenging Markets,” the consulting firm Deloitte says shareholder returns vary much more among companies around a recession than in good economic times – that is, some emerge as winners that outperform for investors, while others survive but never quite lift off for shareholders.

Deloitte outlines four stages of strategy for recession and recovery: strengthening the balance sheet, optimizing performance, building confidence and positioning for the future. Most companies have addressed the first two by working to reduce debt and cut costs; now we’re looking forward.

Building confidence as a basis for outperforming in a recovery, Deloitte suggests, may include improving corporate governance; demonstrating a strong approach to anticipating and managing risk; creating realistic expectations and delivering on promises; and responding proactively to the prospect of increasing regulation.

Deloitte says positioning for the future means developing a strategy for achieving near- and intermediate-term growth in existing businesses; changing the business model where markets or conditions have changed (e.g., ongoing credit limitations or sluggish consumer spending); and expanding through M&A or new products.

The consultants’ emphasis is that CEOs and senior management should be doing the work of strategy formation for the next phase of the economy. But IROs, equally, should be taking on the job of explaining strategy for what’s coming next.

… Give historical perspective. One of the best ways to talk about the future is to talk about the past. In today’s Wall Street Journal, Justin Lahart analyzes “the Great Recession” in comparison to eight decades of economic slumps (with cool interactive graphs online, if you’re an Econ nut). Most companies can draw upon experience with past recessions – and the recoveries that followed. So we can speak factually about how recovery tends to work its way through our business.

… Share specialized knowledge. Companies can add value for investors and nurture lasting relationships by sharing industry-specific insights. That means helping investors, especially generalists, understand how the business cycle works its way through your sector, how the competitive landscape is changing, and what special risks or opportunities you see. Your view of the business in which you compete is a valuable perspective to add to the investors’ mosaic.

… Don’t be overly optimistic. A realistic tone, infused with humility, seems to fit the times. Most of us didn’t predict the economic turmoil would be this severe, so we have reason to be cautious about forecasting the strength or timing of recovery.

There are positive signs. Floyd Norris of The New York Times notes: “The index of leading indicators, which signals turning points in the economy, is rising at a rate that has accurately indicated the end of every recession since the index began to be compiled in 1959.” And various industry-specific indicators show upticks.

We could truly be at the bottom, although some business people sound more like they just can’t imagine things getting any worse. The recovery may already be underway. Or, as Norris says, we may be entering the first upstroke in a W-shaped recovery, only to face a second downturn of unknown severity.

To be clear, I’m not trying to call an economic recovery – or deny it. My point is that as IR people we need to be thinking and communicating about the coming recovery, probably without predicting the timing.

When should we declare that recovery has arrived? Personally, I favor a factual approach that keeps investors current on company or industry-specific indicators, including third-party economic data. And then I would suggest waiting to break out the champagne until actual results start to show improving sales and profits.

That’s when investors will start breathing easier.

© Copyright 2009 Johnson Strategic Communications Inc.

A dry summer ahead for funding?

April 8, 2009

The financial crisis and depressed market are a life-threatening drought for many biotech companies, according to an April e-newsletter from the Biotechnology Industry Organization. Says BIO:

There may be no summer lovin’ for biotechs. By most accounts, investors will remain tight-fisted with their cash for some time, opening up their wallets for only the most promising investments.

Writer Eric Wahlgren cites Burrill & Company estimates that more than a third of 344 public biotechs were down to less than six months cash on hand at the end of the first quarter.

Despite the gloom, there’s still investment money out there, but companies will have to work harder to get it, experts say. The key to being successful at raising money in the current environment will be to think creatively, remain flexible, and start talking to potential investors well before there is an urgent need for cash.

In the BIO piece, industry players suggest biotechs may have to tap existing venture capital investors for inside-led rounds, consider venture debt, outlicense more compounds for the cash, set up special financing structures and the like.

One example of creative dealmaking is Exelixis, BIO says:

The advice for companies looking for cash, [Exelixis CFO Frank] Karbe says, is that they should always be having lots of discussions with all types of investors, including bankers, venture capitalists, specialty funds, and other biotech and pharma companies.

Thinking creatively and working harder, by the way, may mean experiencing more than the usual pain in fundraising and valuation – for example, selling the company when you’d rather just raise cash.

The advice to biotechs – work hard, stay flexible, be creative – probably applies to investor relations teams in many industries. Money doesn’t seem likely to rain down on anyone in 2009.

Monday, Monday …

March 30, 2009

I guess we learned a couple of things in Monday’s market:

  • Rallies don’t go on forever, especially amid negative business fundamentals (say, two of the Big Three teetering on the brink).
  • Attention CEOs: President Obama is an activist shareholder, and if you take the government’s money you should know who’s in charge.
  • Economic and industrial policy is unhinged from philosophical principles (this happened in the last administration), and global policy actions seem likely to continue in ad hoc reactive mode.

Those of us laboring in the investor relations trenches can continue to expect, shall we say, a fluid market environment. Stability and comfort aren’t in the macro picture  for the foreseeable future.

Graham & Dodd on today’s market

March 11, 2009

For perspective amid the market turmoil, I’ve been reading the classic Security Analysis by Benjamin Graham and David Dodd. The first edition, from our local library, takes us back 75 years to the market of 1934.

In the midst of the Great Depression, the value mavens write:

img_28511Economic events between 1927 and 1933 involved something more than a mere repetition of the familiar phenomena of business and stock-market cycles. A glance at the appended chart covering the movements of the Dow-Jones averages of industrial common stocks since 1897 will show how entirely unprecedented was the extent of both the recent advance and the ensuing collapse. They seem to differ from the series of preceding fluctuations as a tidal wave differs from ordinary billows …

Sounds a little like the rise and fall we’ve experienced recently. Graham and Dodd, while expounding quantitative approaches for hundreds of pages, also comment on the role of human nature:

One of the striking features of the past five years has been the domination of the financial scene by purely psychological elements. In previous bull markets the rise in stock prices remained in fairly close relationship with the improvement in business during the greater part of the cycle; it was only in its invariably short-lived culminating phase that quotations were forced to disproportionate heights by the unbridled optimism of the speculative contingent. But in the 1921-1933 cycle this ‘culminating phase’ lasted for years instead of months, and it drew its support not from a group of speculators but from the entire financial community.

This, too, sounds a bit like the bull-to-bear cycle from the 1990s to present. Back to Graham and Dodd, in 1934:

We suggest that this psychological phenomenon is closely related to the dominant importance assumed in recent years by intangible factors, viz., good-will, management, expected earning power, etc. Such value factors, while undoubtedly real, are not susceptible to mathematical calculation; hence the standards by which they are measured are to a great extent arbitrary and can suffer the widest variations in accordance with the prevalent psychology.

The authors say “the investing class” is more likely to be carried away with speculative values and intangibles when investors have “surplus wealth” to deploy. In hard times like the 1930s, investors will apply “the old-established acid test that the principal value be justified by the income.”

That, to me, is an application of market history to investor relations. We can expect investors in 2009 and beyond, battered by the bear market, to be much more focused on the acid test – the visibility of real earnings. And more skeptical of excitement and potential. We should communicate to investors where they are.

Tough times? IR can shine

March 10, 2009

cole-3-10-09-kcThe Kansas City chapter of NIRI heard today from Derek Cole, an experienced investor relations pro and NIRI national board member who is Vice President-IR & Corporate Communications for ARCA biopharma Inc. in Denver. A sampling of Cole’s advice on “Winning IR in a Tough Economy”:

  • “Get out there” – despite the tough economy and market. The recession causes some CEOs to withdraw because they don’t feel comfortable with a negative macro picture and the difficulty of predicting where it’s headed, Cole says. Companies need to explain what they don’t know, as well as what they do, he says. And investors won’t expect a CEO or IRO to have crystal-ball answers that no one has. They’re looking for sound management and strategy amid this environment.

A bunker mentality creates a dual “opportunity”  for the IRO: First, you can be an advocate with the CEO and CFO to get out and meet with investors – build credibility and distinguish your company. And, second, as an IR person you can get out more yourself – if the CEO or CFO will send you, it’s a great time to develop your relationships with investors and analysts without taking their time. Stepping up at a difficult moment enhances your stature.

  • Be a strong advocate for good disclosure, including taking your hits when things go wrong. Cole told of a heated internal debate, in a former job, when a key clinical trial failed for a biotech company: Do we announce the trial failed, or come up with positives to gloss it over?

Telling it straight, Cole said, is how companies develop long-term credibility with investors and other constituencies. “If you’re correct in what you’re doing, you really should be willing to push your management team very hard to do the correct thing,” he said.

  • Be sure you’re targeting IR efforts to the appropriate investors. In the life cycle of companies, and through economic cycles, your mix of investors will change. You may know and love the manager of a giant mutual fund, but if you’re a microcap you won’t be appropriate for that manager’s portfolio – so meetings and communication could be wasted.

Cole says a database of institutions yielded 2,500 investors who have owned names in his company’s industry in the past 12 months. He and the CFO know the top 75 or so very well. But those aren’t necessarily the ones they should target right now – smaller funds by make a better fit – he says. The IRO brings expertise to decisions on where to focus efforts for maximum benefit.

  • From a career standpoint, a tough market can be a time to shine. Most IROs are probably getting more face time with CEOs, CFOs and boards right now – in a crummy market – than during easier times, Cole notes. It’s a time to be the center of information for those constituencies.

Create an “Ask and Read Hour,” Cole suggests. Set aside time to increase your expertise in critical areas. He suggests reading more about your industry, your market, how-to ideas for IR, your boss’s concerns (read magazines that the CFO or CEO draw upon). Also, ask questions that help you learn: What do your analysts or investors want that they don’t currently get? Where do industry experts see down the road? What is the CEO’s strategy?

  • Investor relations is about explaining your company – and this doesn’t change in a tough economy or bear market. Cole says the macro environment may change your content, but not the mission of IR. You need to keep explaining your business, what your company does, how you see the economic situation and its impact on your business.
  • Really, says Cole, it’s not about “Winning IR in a Tough Economy.” It’s just about “Winning IR.” And he’s right.

This isn’t good …

February 23, 2009

angry_grizzly_istockSo the bear market reasserts itself. In an ugly two weeks, the S&P 500 finally breaks below its 750-ish autumn low, back to 1997 levels. Bad news echoes and re-echoes. We’re on Financial Bailout 3.0 or 4.3 or … well, big banks almost want to be owned by Uncle Sam. Automakers swoon. Fear rules. President Obama puts Joe Biden in charge of reviving the economy.

What’s an investor relations person to do?

1. Hold fast. Hang onto your job, of course, to the extent that it’s under your control. More to the point, hold fast to your company’s story. How is your business planning to survive hard times – and make shareholders a bundle of money when the economy does get better? This is the “hope factor.” Keep telling it.

2. Remember that it’s not about today. The investors you want on board are focusing on 2010 or 2011, and this should be your focus with the market. A NYSE floor broker tells the Wall Street Journal today, “This isn’t an investing market anymore, it’s a trading market.” While investor relations feeds timely information to everyone, we’re really about providing the longer term story to longer term investors.

3. Be calm and factual. You shouldn’t hype the story (no one would believe that now anyway). But neither should you convey despair. What is your best, most realistic assessment of the current business environment? What macro factors actually drive your business, up or down? What are you doing to maintain or improve your market position, and to be profitable? What are you doing to reduce your cost structure? To improve your balance sheet? What are the risks? We should be students of these questions.

We’d like to think the market has to be headed up from this point, but it may not be. Meanwhile, we need to keep talking to people.

I shared some other ideas on “bear market IR” in earlier posts here and here and here. Please feel free to add your ideas, experiences or reactions by commenting on this post (anonymous is fine). And good luck!

© Copyright 2009 Johnson Strategic Communications Inc.

Communicate your relative strengths

January 29, 2009

A couple of Boston Consulting Group gurus urge companies to “Seize the Advantage in a Downturn” in the February 2009 issue of Harvard Business Review – and investor relations is part of their story.

After listing actions management can take to maximize cash and working capital, reduce costs, and drive revenue, authors David Rhodes and Daniel Stelter cite valuation as a competitive tool:

Your company’s share price, like that of most firms, will take a beating during a downturn. [Been there, done that – my comment.] While you may not be able to prevent it from dropping in absolute terms, you want it to remain strong compared with others in your industry.

Enhancing relative valuation, a familiar benchmark for IR people, calls for communicating your strengths vs. the peer group. Of course, messages to investors must follow concrete actions by management:

In a downturn, our data shows that markets typically reward a strong balance sheet with low debt levels and secured access to capital. Instead of being punished by activist investors and becoming a takeover target for hedge funds, a company sitting on a pile of cash is viewed positively by investors as a stable investment with lower perceived risk.

Stability that may seem sleepy and boring in good times is suddenly popular – but you need to talk about it, the BCG guys say:

For that to happen, you need to create a compelling investor communications strategy that highlights such drivers of relative valuation. This will also be important as you try to capitalize on the competitive opportunities that a recession offers, such as seeking attractive mergers and acquisitions.

The consultants also say raising dividends has proven more effective than share buybacks in driving valuation. But they note the potential conflict between richer dividends and maintaining a healthy cash hoard.

(Call or email me if Johnson Strategic can help you put together a compelling IR strategy or craft messages for these turbulent times.)

Yes, October was ugly

November 1, 2008

In case you’re wondering, yes, the bear market is ugly – especially that over-the-cliff plunge in October. This week, the finance & econ blog Calculated Risk offered a graph comparing the current slide in the S&P 500 (bright red line) with past bear markets from recent history:

I guess we’re back to figuring out how public companies can paddle upstream (next to impossible), or at least continue to build credibility and relationships with investors. See posts here and here. On the other side of this, we all hope to emerge looking – well, not so ugly.

Dow 36,000 again

October 21, 2008

No, no, I am not making a stock market prediction. 36,000 seems less likely to me than 3,600 – and both seem so far out on the tail of a probability curve that I’m not losing any sleep. Rather, it occurs to me that someone out there, right now, is working on a book like Dow 36,000 for the investors of 2009.

In case you missed the original back in 1999 (and copies are hard to find today), a couple of guys ran some analysis on the market of the Nineties and concluded that risk wasn’t what it was cracked up to be. The authors said investors in the dot-com “bubble” weren’t irrationally exuberant, because equities were grossly under-valued:

Stocks are now, we believe, in the midst of a one-time-only rise to much higher ground – to the neighborhood of 36,000 for the Dow Jones Industrial Average. After they complete this historic ascent, owning them will still be profitable but the returns will decline.

Euphoria kinda takes your breath away, eh? Well … My point is that the market does experience mood swings. In the current dreary stage, people are wondering if we’ve hit bottom in 2008, or how long the carnage will continue. Warren Buffett says it’s time to buy, though it’s hard to know whether he is being real or statesman-like. Bulls and bears are vocal now. And probably the stock market’s obituary will be written a few more times.

But I do imagine we’ll see, in three or six or 12 months, a return to optimism. Perhaps new cheerleaders will publish Dow 36,000-type articles and books. Assuming the recession of 2008-09 doesn’t turn into Great Depression II, the market’s mood will change. Fear will yield to greed. Memories will start to fade. A new bubble may test its buoyancy, not that bubbles are healthy. Eventually people will believe it’s different this time.

My real point is that investor relations professionals need to be thinking through the cycle – for the market, our industries and our companies. Where are we today in valuation – and how will that change as the cycle progresses? Who are the likely buyers of our securities in this phase – and the next? What’s realistic? What are the risks? What are our messages – for uncertain times, for a recession, for the recovery that lies beyond?

In our IR tactics, we need to avoid getting ahead of the market, but we do need to be thinking ahead.

(For the record, a bit over Dow 14,000 was the peak – in October 2007. Maybe next year’s book could just chart a path back to Dow 10,000?)

© Copyright 2008 Johnson Strategic Communications Inc.