February 2, 2010

Beware Reporting Earnings In a Vacuum

We’re late this week for a good reason: skiing. We hit the Vail slopes today (and as the comedian said, “We’re here all week!”) See a couple shots off my Blackberry here and here. No new snow in awhile, but the crowds were small, the snow groomed well, the sun shining. It hardly gets better.

Have you been keeping up on the intrigue in global markets? There’s the central banker in Argentina resigning after a battle with President Kirchner over use of reserve currencies. In Greece, even King Leonidas and his three hundred Spartans would find the country’s balance sheet a mighty foe. The Euro has plummeted (after our Italy trip, darn it). Australia leaves its interest rate alone after a series of raises, juicing the markets and dropping the Auzzie dollar.

This seismic activity shifts plates in other parts of the global market, IROs. It’s pretty basic to IR, actually. For instance, in the last three days of any given month we see significant window-dressing activity behind institutional trading, especially if mid-month hedging activity with options expirations is hyperactive.

That in itself isn’t new. But it’s made bigger and badder today because of intertwined trading, investment and economic markets. If a company generates revenues in multiple regions, and its shareholders also have investments in other jurisdictions, it’ll affect your stock price in some way. Risks must be smoothed and absorbed. This is today’s institutional investor’s Job Number One.

Even if we don’t totally believe it, we tend to act in investor-relations as though equity markets are vacuums where prices are set by buyers and sellers who are magically immunized against the figurative dusts and pollens plaguing every other thing on the planet. We think our stock prices go right on tying to financial results, despite the great deal of obfuscating noise, from fragmented markets, to continually fluctuating monetary supplies, to quite literally the price of tea in China, get in between. We can only sigh when we see market commentators continue blithely on, despite massive global monetary dislocation, as though the “free markets” will behave as they always did, shrugging off the seismographic chatter and rendering accurate and proper proxies of value.


So we need to take charge IROs. One key thing we can do is to get better about when we report the crucial information that informs the 25% of the audience still well-tuned to business fundamentals. When avoidable, don’t report earnings inside the last couple days of a month because that’s liable to rock risk-management metrics – especially if you do large business in other jurisdictions. Wait till the following week, when you have leeway. Don’t be in a rush to look like everybody else. Machines love uniformity of timing.

Don’t report during options expirations, because the only parties you’ll really help are speculative traders. Do it before or after. In a sense, you force investors to choose you, rather than choosing to gamble with iron condors or some other put/call tactic. Plus you give those active investors trying to keep fundamentals in the game the best chance to act on your news without being penalized by derivative hedges.

If that’s confusing, think about it this way. For matter, there’s anti-matter. For every credit, there’s an offsetting-debit. Every action on this planet and in our universe governed by the laws of these particular three dimensions produces a reaction. The same is true in trading markets (it takes two sides, every time).

So don’t think in a vacuum. Consider what impact your results will have if you were insuring the investment, not making one.

And now it’s time for après ski!

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