Tagged: metrics

Metrics

How many of you wear a Fitbit?

I remember the last time I saw Jeff Morgan, erstwhile NIRI CEO.  I said, “Jeff, you’ve lost weight. You’re a lean machine!”

He tapped his wrist, and said, “Fitbit. You can appreciate it, Tim. It’s just measuring data, right? Burn more than you take in.”

When we were roaming Barcelona last September, Karen’s phone was a cheering section congratulating us for achieving footstep goals.  Because there’s an app for that of course.

We’ve now bought a Peloton for our home gym, a finessed stationary bike replete with interaction and data. You can measure everything. You mark progress and capability.

On Friday the 13th the Wall Street Journal ran a story about online life insurance. Companies are using algorithms that parse lifestyle data from prescription-drug, motor-vehicle and credit-card sources to meter risk in place of testing blood and urine.

Data reveal facts about conditions. That’s the starting point. The next step is comparing data gathered in one period with the same metrics from another to see what’s changed. It’s what your doctor does.

And it’s the heart of financial reporting. We can debate the flaws of the requirement, but every quarter public companies are providing metrics to investors and analysts, who in turn model the data to understand business outcomes.

In fact, it’s the beat of the market. Every week data pours forth from governments and central banks on producer-prices and purchasing managers and jobs and consumer sentiment and on and on it goes.

I think it’s too much, promoting arbitrage on expectations versus outcomes. But think of the cognitive dissonance in our profession, investor-relations.  While everyone is measuring short-term, IR is trying to manage long-term. Yes, we want long-term commitment to our shares.  But that’s not how prices are set.

Unless you measure something the way it functions, you’ll get incorrect conclusions.

Much of the IR community isn’t measuring at all. We react. Right? The stock moves, and we call people for explanations.  How can answers be accurate without comparatives?  You don’t know what’s changed. No Fitbit is delivering data supporting conclusions.

The key to good management is consistent measurement. It’s the only way to understand an ecosystem and sort what you can control from what’s systemic.

Suppose I declare that I will float across the room.  Well, gravity, the rule governing the movement of bodies in this universe, says on this planet my pronouncement is flawed.

The gravity of the stock market is Regulation National Market System.  It defines how money moves from point A to point B.  We can observe those movements.

I showed a company yesterday how shares climbed from $60 to $70 during election week last November on Asset Allocation, and from $70 to $72 on Risk Management. That means ETFs and derivatives boosted shares.  Active money didn’t buy until the stock was at $75, even though it was selling the stock at $61 right before the election. Active money didn’t know what to do.

What followed? Fast Traders sold and shorted because the last fools to the party were the Active stock-pickers unaware of how the market works now.  No wonder many lag the averages.

If investors making rational decisions set the prices of stocks more than 50% of the time, the market can be called rational. Otherwise, it’s got to be called something else.  IR professionals, it’s your job to help management see the market realistically.

All the people talking about stocks are of a breed. The sea of money using models isn’t telling others what it’s doing!  But it’s setting prices.

You must measure now. What’s your Fitbit for the IR job?  Is it calibrated to the market we have today or one that no longer exists?

Case in point: I told a healthcare company recently that the data showed they would be unable to hold any gains until short volume were no longer consistently 65%.

“But our short interest is well below sector averages,” they said.

“That measure is from 1975,” I said. “It doesn’t reflect how the market works now.”

The stock dropped 8% yesterday and remains at the same average price it’s had since short volume rose over 60% well more than a quarter ago. The data – the Fitbit for IR – will tell them when conditions have changed.  Fitness can be measured in IR as it is elsewhere.

Measurement is management.  Put key metrics in front of your management regularly. Don’t wait to be asked for information – then it’s too late and you’ve lost control and become a glorified assistant (and they’ll define the job for you).

Create anticipation with metrics. “We’ve had a nice run but Fast Traders are leading, we’re Overbought, and short volume is over 50%, so expect some pressure next week.”

That’s what you should be doing.  Stop calling people for wild guesses unsupported by data AFTER something has occurred. Start measuring and setting expectations – especially around earnings, or events like options-expirations today through Friday.

You can only set expectations if you’re first consistently measuring and comparing key data points. This is evolved IR.  You can invent your own metrics. But we’ve already done that for you.

Look Around

It’s good to know what’s around you.

En route back from Austin to Denver we traversed the hinterlands including eight miles of dirt track to visit the evocative scene of the 1864 Sand Creek massacre of peaceful Cheyenne and Arapahoe north of Lamar, CO. There’s an eerie stillness yet.

A technology client in a five-day period showed a 14% increase in midpoint price on a 4% rise in Rational investment and a 3% uptick in Speculative trading. It’s not evocative, I agree. You see all those percent signs and you want to watch cartoons or have a cocktail hour. Or drive a deserted road. Any escape from dreaded math!

But it’s telling you as plainly as historical evidence what’s happening. It’s laden to dripping with news you can use. Rational investment occurred. Speculators picked up on it and moved the price. And look how important rational investment is – just a few percentage points can change everything. There’s no better or more immediate proof of the need for IR and sweating the small stuff. One call here, one meeting there, and the whole structure of your equity market transforms.

Think about what web advertisers do with data. Every click, visit, or search is a data point that paints a three-dimensional picture of you, the consumer, and which then lines the margins of your browser with things you might use. And cookies might send you emails offering travel deals, an Overstock auction, or affordable life insurance.

Another client gained 5% around Thanksgiving, on a 7% increase in Program trading – and we even know the brokers responsible for it, and how much they were up or down compared to the preceding period. We use an algorithm for that. We marked Rational and Speculative trading as shares of market this week versus last and both were down. Hedging was the measurable, mathematical price-setter. (more…)