Posts Tagged ‘Bear market’

Steady as she goes, IROs

August 16, 2011

A quote of the day for investor relations professionals, from National Investor Relations Institute President and CEO Jeff Morgan in his “IR Weekly” email and blog post under the heading “Market Mayhem”:

Market volatility reached new extremes last week as we experienced global market moves of positive to negative 5% from one day to the next. Most believe it is very unlikely these market moves were driven by fundamental analysis of companies, but instead by panic, margin calls and computerized trading. For IROs, these are the most challenging market conditions as they lack logic and rational explanation. Time and other actions outside our influence and control will bring markets back into check, as we continue to tell our story to investors.

I agree, although market mayhem may be more rational than we can see at the moment. However much we dislike “panic,” if the market performs horribly going forward, fear will seem logical in retrospect. Time will tell whether investors should “Hang on and weather the storm” or “Batten down the hatches and go to cash.”

Certainly for IR professionals, whose individual companies may be doing fine even as the market goes crazy, it’s sound advice to hold the wheel … steady as she goes.

© 2011 Johnson Strategic Communications Inc.

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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.

On the bright side

January 8, 2010

Brian Wesbury, chief economist at First Trust Advisors, is seeing V’s everywhere. A strong recovery, he believes, is in full swing for the US economy. The stock market, of course, is up. His graphs all show a V-shaped ascent after the nosedive of 2008.

Yet people everywhere are still worried, intent on reliving the worst of the 1930s:

What I sense is that the panic [Autumn ’08] altered a lot of psyches. It’s like people are in the grip of an economic ‘Stockholm syndrome.’ The Stockholm syndrome is when people taken hostage fall in love with their captors. In the panic, people fell in love with pessimism.

The market economist delivered the annual economic forecast today for the Kansas City chapters of the Association for Corporate Growth (ACG) and Financial Executives International (FEI).

Wesbury doesn’t buy into the “pall of pessimism” or the “new normal” idea that has become conventional wisdom. He’s confident that we are fast returning to the “old normal” (except for unemployment, which he expects to improve but stay stubbornly high – largely because government is gobbling resources that might have fueled private businesses). Overall, he’s an unabashed optimist:

I believe we’re in a V-shaped recovery that’s going to take [the market] back to the pre-Lehman levels: 12,500 on the Dow. The question is whether whether we’re going to 13-, 14- or 15,000.

If you want Wesbury’s evidence, check out his book It’s Not as Bad as You Think: Why Capitalism Trumps Fear and the Economy Will Thrive. (Confession – I haven’t read it, so I can’t offer an opinion.)

Let’s hope he is right. My crystal ball is hazy, but a “V” would be a victory for all.

© 2010 Johnson Strategic Communications Inc.

Warren Buffett reads annual reports

December 12, 2009

This weekend’s Wall Street Journal has a readable piece on what Warren Buffett didn’t invest in during the financial and economic crisis (“In Year of Living Dangerously, Buffett Looked ‘Into the Abyss'”) … Bear Stearns, Lehman Brothers, AIG, Wachovia, Freddie Mac and others.

Besides making the point that deciding not to invest can be as important to a portfolio manager as pulling the trigger to buy, the story contains this nugget of side interest to those of us who labor in investor relations:

That night, in his offices in Omaha, Neb., Mr. Buffett pored over Lehman’s annual financial report. On the cover, he jotted down the numbers of pages where he found troubling information. When he was done, the cover was dotted with numbers. He didn’t bite. Six months later, Lehman filed for bankruptcy protection.

So Buffett reads annual reports. Oh, I know, he’s a seventy-something sage, and many of us get most of our information online or on our phones. But Buffett is an investor with influence over market-moving sums of money. And apparently he digs into financial reports, marks them up and then makes his decisions.

Not that a nice annual report would have saved Lehman or AIG. But in the normal course of investing, quality of disclosure and clarity of explanation do matter.

Mission accomplished?

October 29, 2009

I’m getting a mental picture: The confident commander-in-chief strides across the flight deck of the USS Economy and addresses the aircraft carrier’s crew as a MISSION ACCOMPLISHED banner flies overhead. “The recession is over!”

Well, maybe we should hold off on photo ops.

The good news on third-quarter GDP rising, breaking the recessionary streak, doesn’t mean we’re finished with tough times. The other good news may be that the Obama Administration does not seem ready to declare victory just yet.

Although a recovery may be taking hold, investors remain plenty nervous. The “U” and “W” and “L” scenarios are still too plausible to declare it’s over.

Not that we should get mired in doom and gloom – but, in telling our story to investors, we ought to keep our feet on solid ground.

For sure, companies and investor relations people should be explaining our strategies for the recovery phase, providing perspective and industry insights. An earlier post offers some ideas on IR for the coming recovery. In this transitional time, we should present a view of the business based on data, not wishful thinking.

Feel free to share your thoughts … Where are we in the economic cycle? And how can IROs best tell the story while the macro picture remains uncertain?

Anthropology of Wall Street

September 24, 2009

If you’ve worked on stock offerings or M&A transactions, you have probably noticed that the smartest guy in the room is always the investment banker. At least in the investment banker’s opinion. (And I say this without any envy or doubts.)

So I perked up when I saw a piece in my college alumni magazine about a new book. In Liquidated: An Ethnography of Wall Street, Karen Ho explores the culture of investment banks. She says the i-bank tribe’s most revered value is “smartness.”

Ms. Ho started researching the culture of Wall Street as a Princeton grad student in Anthropology. Usually, talk of Anthropology conjures images of going to a rain forest to study strange customs. But Ms. Ho, now an Anthropology prof, finds her cultural oddities in the jungle of downtown Manhattan.

At one point she decided field interviews were not enough – she needed to get inside Wall Street by working there. She recalls a Goldman Sachs recruiting session:

“So why should you work here?” asked the recent white male alumnus from Harvard. “Because if you hang out with dumb people, you’ll learn dumb things. In investment banking, the people are very smart; that’s why they got the job. It’s very fast, very challenging, and they’ll teach as quickly as you can learn.”

Sound a little elitist? Repeatedly, Ms. Ho says, Wall Streeters told Ivy League prospects in recruiting sessions for i-banks things like, “We hire only superstars” and “You are the cream of the crop” and “You are all so smart!” (A few years ago, recall, Wall Streeters had jobs – and even needed to hire more.)

Once inside, of course, the oh-so-smart bankers reinforce the self-image. Ms. Ho says that feeling of smartness is what the Wall Street culture is all about.

Now fast forward to the financial meltdown of 2007-09. The article notes Ms. Ho’s conclusion that Wall Street’s latest downfall resulted not so much from greed or stupidity as from the smartest-guy-in-the-room syndrome:

The crash is the natural result of a Wall Street culture in which the self-proclaimed smartest people in the world came to believe that high share prices trumped all other corporate values and, in doing so, imposed their ethos of live-for-today risk-taking on the economy at large.

Not everyone on Wall Street, of course, embraces an elitist culture. I have worked with i-bankers who are humble, down-to-earth and friendly. And some investor relations and corporate execs play know-it-all. On the other hand, as a stereotype for i-bankers, there is some truth to the image of “smartest guy in the room.”

[Disclosure: I have not read Ms. Ho’s book. The magazine version was fine, but I don’t think I’m up for an Anthropology tome published by a university press. Her bottom-line conclusion is interesting. Let me know if you read the ethnography.]

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.

Who’s most shareholder-friendly?

March 24, 2009

The March 2009 Institutional Investor is a must-read for IROs.

The names of top-ranked firms in 57 industries are reason enough to take a look at “America’s Most Shareholder Friendly Companies,” an II ranking based on relationship evaluations by 675 buy side analysts and portfolio managers. Yes, the list includes some of the market’s longtime “blue chips,” but also a few you might not have considered.

You can check rankings in your industry here for a mini-benchmarking.

But the common themes among top-ranked companies are even more compelling. Beyond working hard on delivering fundamentals amid a tough economy, managements are focusing more than ever on relationships with their investors. Here’s a sampler.

Southwest Airlines:

“Any time that circumstances are difficult, it puts that much more stress on providing the right information,” [CEO Gary Kelly] says. “We work hard to establish a baseline understanding of Southwest Airlines’ vision and who we are, and we do the best we can to set reasonable expectations.”

Baxter International:

“The thirst for information from investors has grown significantly over the past 12 months,” says Mary Kay Ladone, vice president of investor relations. The challenge, she explains, is trying to find the right balance between “delivering a simple message that allows shareholders to make investment decisions, but not simplifying the message to the extent that we mask some of the uncertainty. This has always been the case, but the current environment has heightened it.”

… she adheres to five basic principles when communicating with shareholders and potential investors: “simple, transparent, responsive, timely and accurate.”

Kimberly-Clark:

[CEO Thomas] Falk and his investor relations team keep shareholders informed of developments – even when the news is not good – by scheduling regular meetings in the offices of buy-side analysts in major markets and by making themselves available to answer questions. “Good investors are always probing for the soft spots in your strategy and your deliveries,” he says. “They have done their homework.”

Procter & Gamble:

“At the heart of our investor relations approach is the clear understanding that our shareholders are the owners of the company and that we need to be pro-actively responsive to them,” [CFO Jon Moeller] says, adding that P&G hosts investor meetings eight times a year at its headquarters and also attends most major investor conferences. “We make sure they understand our strategy, how we’re competitively advantaged and how we’re building on that.”

You might say it comes down to basics. Companies that execute well on the fundamentals of investor relations – clear communication of strategy, timely disclosure of changes and generous access for shareholders – earn favor and loyalty from the buy side.

And those relationships pay off in an uncertain era.

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.