Holistic IR

Do sharks belong in the ocean?

You might reply, “They certainly don’t belong on land.” But that’s not what I mean.

This isn’t a lesson on catachresis or other obscure grammatical and rhetorical principles, rest assured. But speaking of speaking, if you’re joining IR Magazine for the West Coast Think Tank tomorrow, make a point to find me and say hi, please.

If you miss us, attend the NIRI Silicon Valley chapter session Friday on Market Structure with ModernIR’s good friends Kate Scolnick, Moriah Shilton and Nicole Olson. You’ll get a unique and candid view.

Back to sharks. In Belize, we swam with them (nurse sharks, granted, though while snorkeling I spotted a six-foot reef shark, its fins tipped black, headed fast to sea). Some fear sharks are now endangered, populations shrinking quickly, especially the celebrated Great Whites immortalized by Steven Spielberg in Jaws. It’s hard not to think of them when you’re in Caribbean waters. You wonder what’s there, just out of sight.

But they’re part of the ecosystem. The sea without them would lose a vital source of equilibrium. It’s the same in IR. We want to sort signal from the noisy sharks, and the market is indeed rife with disruption. Like a zone defense the way Syracuse in men’s college basketball runs it, there are traders who shut down movement and progress, feasting on the motion of oblivious investors.

In a mid-cap stock this week, speculative traders on three days in five ran intraday price to the exact same point. They’d identified what was in the water and sized it up. With mathematical feelers, the black-tipped caudal and pectoral and dorsal fins of speculative missiles, they’d nosed out active orders from investors and found their range. So investors paid up, and then price went down. Sharks.

But they’re part of the ecosystem, these speculators. Healthy waters need a certain measure of them. Too many, and they’re telling you trouble looms. Too few, your market is going barren. Despite harrying your investors at times, they’re not your enemy in the IR chair. They’re part of a holistic view that equips you with knowledge about your market structure that you’d otherwise have no way of possessing.

Limit your worldview to ownership changes, that 5-15% of your volume you may track through settlement, and teeming signals of vitality or climate-change will go missing. You’re overlooking the vibrant coral, colorful fish, seat turtles and conchs, the reef sharks and the mantas – the many-splendored kaleidoscope of fascinating market facts. Instead of fearing the sharks, count them – know their numbers.

One of our clients fighting an activist had a new hedge fund show up as a 5% owner. We more often than not can see when forces like that show up in the water because they scare the other fish, even when they have no idea what’s frightening them. We saw sharp changes to Speculative trading on a particular day – exactly the date on the filing that came out some days later.

And beyond the sharks are the whales. We saw plunging Passive investment for another client in a different industry, down 27% in a week, with Hedging, or risk strategies, up more than 100%. The whales were migrating. That whole sector is down sharply – but it wasn’t at the time we saw these changes. Signals.

Holistic IR sees the ecosystem. A good program monitors market-structure for fluctuations tipping to trouble and opportunity alike on the IR reef. If you don’t, you miss one of the greatest shows, a view that can set you apart from the rest splashing through, unaware of the bounty around that makes the IR chair so cool today.