Capitalism – Hi Risk, Hi Reward

16 March 2009

Wikipedia describes the American Dream as a phrase referring to the freedom that allows all citizens and most residents of the United States to pursue their goals in life through hard work and free choice.

An important aspect of the American Dream (and capitalism) is the freedom to prosper.  Today, unfortunately, too many feel entitled to the prospering aspect of capitalism.  The downside is too rarely contemplated.

The equity markets are a good example of this.  A lot of people made a lot of money from 2003 to 2007. Now people are complaining because of the huge losses of 2008 and early 2009.  We need governments to step in, we need bailouts, and we need stimulus packages.  Some of these horribly run companies are even called “too big to fail”.

When an investor invests they have to be prepared to make a lot of money.  They also have to be prepared to lose a lot of money.  In some extreme cases – you make a ton of it, in other extreme cases – you lose it all. Investing is a dangerous game that is not meant for everyone.

Even if a friend, a broker, an analyst, an entertaining and well respected CNBC personality, or the company itself told you that a stock was a “safe” investment – as an investor, you have to be prepared to lose the whole thing.

Capitalism means freedom to prosper.  It does not mean guaranteed returns, unlimited upside, bailouts when needed, and protection on the downside.

Technology Matters in IR

06 March 2009

 

I can just imagine an IRO 25 years ago saying “Why would we need an IR website?  People can just call me if they need information.”  Today, of course, IR websites are not a luxury, they are a necessity.

That makes me look at what is happening with technology (more specifically social media technologies) today and wonder how IR departments will use them in the near future.

Last week, Microvision allowed the investment community to ask questions on their corporate blog.  These questions were then answered by management on the company’s quarterly earnings call.  One would think that this is common practice for IR departments in today’s progressive technological world, but it’s not common at all.

The fact is IR departments could be so much more effective, not to mention efficient, if they embraced social media tools as opposed to criticize or ignore the tools.  Remember, IROs used to criticize and ignore IR websites in the not so distant past.

I predict that in five to eight years from now that the majority of IR departments (that’s more than 50%) will extensively use social media technologies when communicating with the Street regardless of their market cap.

It’s inevitable.  Those IR departments who embrace social media today will be thought of as leaders.  The rest will merely follow.

The Financial Crisis – How Did it Happen?

26 February 2009

In case you haven’t heard, the global economy is in something we call “a crisis”.

Put your hand up if you know how this crisis got started.

It was all because of greedy investment banks on Wall St.  Right?

Or, maybe it was because of certain lenders within certain banks on Wall St.  Right?

Or, maybe it was all because of housing prices rising out of control.  Right?

Or, maybe it was because of the US Federal Reserve making interest rates too low.  Right?

Or, maybe it was because too many people started buying too many things (like houses) that they couldn’t afford.  Right? 

Or, maybe it was all of the above.

It’s complicated.

Jonathan Jarvis has done a great job of visually explaining the credit crisis in less than 12 minutes.  It’s impressive to see how the creative use of video can help tell a complicated and important financial story.  Watch and learn.

Obvious? I Wish.

20 February 2009

I recently came across an analyst research report that simply stated the following:

“We are suspending coverage on <<anonymous company name>> as we have been unable to access management to discuss developments at the company. Our previous ratings and fair value opinion are no longer valid.”

So, let me get this straight – an analyst is covering your small cap company and wants more information about your company so that he can get more investors to buy your company’s stock. 

Sounds like an important stakeholder to me. 

Unfortunately, he can no longer cover your company because he can’t get enough (or any) information from you about the company.  You won’t return his calls and emails and you won’t meet with him.

Hmmm.  Not exactly a recipe for success when it comes to IR.

Not only should your company be talking to sell-side analysts, you should have a regularly updated strategy of how to effectively engage each analyst that covers you (or may cover you).

An Investor Relations Officer (IRO) once said to me – “We don’t speak with that analyst.  He doesn’t like us.”  This may sound ridiculously obvious, but, that’s not the kind of analyst engagement strategy that leads to an effective IR program.  I wish these kinds of statements from IROs were rare….but they’re not.  They are actually far too common.

No matter what the size of your company is, you need to get your analyst engagement strategy in order.  In most cases, you need them more than they need you!

Every Breath You Take

10 February 2009

The financial community is fickle.Investigate Institutional investors and analysts who love you today can, and often will, leave you tomorrow if you give them a reason to.  Investors and analysts, rightly or wrongly, watch every move you and your company make.

Here are just a few attributes that the financial community examines when looking at your company:

  • Management’s body language during a one-on-one meeting – if you fidget while answering a tough question then something is wrong.
  • Management’s tone on a conference call – if you are agitated by a particular question then a vulnerable area of the business has been exposed.
  • Attendance (or lack of attendance) at an investor conference – you didn’t show up, so obviously you don’t want to face the investment community. Business must be bad.
  • Responsiveness to information requests – you haven’t responded to a voice mail and email from 3 hours ago.  Clearly you are avoiding investors.
  • Updates to forward looking statement disclaimers – there is something new in this quarter’s disclaimer, therefore the lawyers are sensitive to something new.
  • Traffic (or lack of traffic) at your tradeshow booth – there’s only a few people at your booth.  Your product is obviously inferior.

Top notch investor relations departments attend to every detail.  They account for all of the above attributes and dozens more.  They are prepared.  They rarely give the most skeptical of investors and analysts a reason to be skeptical.

When it All Goes Wrong

16 January 2009

If it hasn’t already, a corporate crisis will hit your company and therefore it will hit your IR department.  Like it or not, the quality of a CEO, a CFO, a management team, an IR department, or an IR guy/girl is often judged by how well (or how poorly) a crisis situation is handled.

The financial crisis has produced many incidences of corporate crisis.  Bankruptcies, lowering expectations, missing projections, liquidity issues, or cutting staff – we’ve pretty much seen it all over the past 5 months.

While the press release that announces any bad news is important, it is the post-release interactions with investors, media, employees, partners, and other stakeholders that really count.  That post-release activity is what defines how good you are (or how good you are perceived to be).

Trillions on the Sidelines

07 January 2009

Recent media reports are suggesting that there is $8 to $9 trillion (with a T) in investment dollars sitting on the sidelines as a result of the massive selloff in the markets over the past 4 months.

Even if that figure is exaggerated, even if it is only1 or 2 trillion, even if it is only hundreds of billions, then this is still an incredible opportunity for viable publicly traded companies to attract investment.

Much of this sidelined cash will find a home in 2009.  Will some of that cash find its way into buying your company’s stock?  Does your company have an investor relations plan to go after this unprecedented opportunity?

Now is not the time to be off the radar screen of the investment community!

First Wall St. and then Main St.

10 November 2008

The stock market tends to be a leading indicator for what happens out there in the real world a few months down the road.  The financial crisis hit a few months ago and people went along on their merry way, curious and concerned about what was happening but maintaining the status quo in their lives.  Now, things on Main St. are starting to happen.

Just today, here are the business headlines:

Corrective corporate actions are being taken.  How is your IR department conveying the message?

Have We Hit the Bottom?

03 November 2008

A couple of weeks ago, I took a quick poll of 15 financial analysts who cover various sectors in NorthQuestion mark America.  The main question asked of them was – “Has the Dow Jones Industrial Average hit a bottom? 

Every single analyst answered “NO, this is not the bottom.”

The analysts were evenly split on where they saw the bottom being.  Half saying in the 8000’s on the Dow, the other half saying in the 7000’s.

While it seems that the market has paused over the last week (some may even say the market has slightly rebounded) it’s interesting to note the overwhelming thoughts of the so-called experts.

I bring this up because the fourth quarter tends to be when investor relations professionals start (and in some cases conclude) their planning for next year.

Calling the direction of the market in 2009 will be challenging.  Calling the direction of your IR department in 2009 shouldn’t be challenging.  Don’t sacrifice the ever important planning phase of the IR cycle because of market uncertainty.

Financial Crisis – Assuming the Fetal Position

10 October 2008

As Alan Greenspan, former Chairman of the US Federal Reserve put it “we are in a once-in-a-centuryFetal position financial crisis”.

Investors and owners are asking – is the company stable, and is my investment in long term danger?
Employees are asking – is my job safe?  What can I do to help?
Suppliers are asking – will you continue to be a customer of mine?
The media are asking – is there a story to tell about this company today?

Ask yourself – is our organization effectively communicating with these stakeholders during this financial crisis?

Now is not the time to assume the fetal position and wait for the dust to settle.  Now is the time to communicate with your stakeholders.  That includes investors, analysts, employees, media, governments, suppliers, and others.  I can almost guarantee that they will want to hear from you.