April 30, 2014

Binary IR

There’s a joke software engineers tell. There are 10 kinds of people in the world. Those who can count in binary and those who can’t.

Nerd jokes (no offense, technology friends!) are often neither immediately nor apparently funny. But the point is binary understanding, a sort of either/or perspective.

Suppose you were planning a vacation. After much research, you decide like Tiger Woods that you’re going to Cayo Espanto, off Belize. You reserve its luxurious accommodations, arrange for transit from the mainland, plan for time out of the office, purchase clothing and other supplies, even get your scuba certification so you can plumb the depths of the Great Blue Hole off Lighthouse Reef while there. Last, as an afterthought, you look for airline tickets.

And there are none.

If you’re Tiger Woods, you don’t need no stinking airline tickets (grammatically impaired colloquialisms are never accidental here). All analogies break down somewhere. But you get the point, right. Reserving rooms and laying plans before determining if the trip is possible is getting the horse and cart confused. And there is requisite order to the effective horse-and-cart combination.

Which brings us to investor relations and market structure. IR has always considered its objective to be singular. In geopolitical parlance, Message enjoys regional hegemony. There are no other considerations.

I’m killing you with metaphors, I realize. But IR is no less a binary pursuit than is the choice between yes and no. If you plan a vacation but can’t get there, the plan dies. If you craft a grocery list of things you need and the store you visit has none, the plan dies.

We just assume that shares to buy somehow exist for all the money we target (maybe we over-target?). I will consent that in our roaming set of analogies, mechanisms, rubrics and metaphors, that IR strategy – The Message – is the horse. So to speak.

The cart is market structure. It’s the plane ticket. The grocery store. You can work your messaging strategy like fingers to the bone, but if the money you’re trotting out to meet can’t buy shares, you’ve wasted your time and the investor’s.

What supply of your shares is actually available to active investors, especially ones unwilling to aggressively compete for them? What happens to your market structure if somebody buys 10,000 shares? What’s a “big” behavioral change in your equity market? How much of your daily volume comes from rented – shorted – shares, and how does renting alter market behaviors? What impact does competition from fast money and indexes/ETFs have on the capacity of active value money to build positions?

IR is binary. There’s story, and there’s product. If you know about just one, you’ve planned a trip to Cayo Espanto without ensuring transportation for arrival.

In no other marketing endeavor would we sell something without first ensuring that the product exists sufficiently to meet demand. At minimum we’d model the impact of increased demand. Will that bring out more buyers – or more sellers?

You can’t haul much without a cart. And the keys to the IR kingdom hang not where ye think. That’s one – or zero – you can count on.

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