“We track everything in our facilities, down to the number of gloves we use. Why wouldn’t we track everything in the market? Our primary purpose is creating
shareholder value.”
So said one of the investor-relations rock stars of the modern era over dinner with executives on a non-deal roadshow.
I learned about it by phone this week. In a non-Pandemic year I visit as many clients as I can. I don’t miss the airports. I do miss the faces.
In 2020, I’m calling clients, the old-fashioned way to hear these fabulous examples of great IR leadership.
What did the execs think of the answer? They loved it so much that this person is now in charge of corporate development and other business initiatives.
This IRO introduced market structure to the board of directors. Nobody had. They recognize now that story is just one driver of shareholder value, and not the biggest.
Now, maybe you quail at the thought of getting more responsibility by demonstrating value and leadership. I get it. Most of us are pretty busy already.
But if adding value for your organization is on your list in 2021, IR professionals, here’s a simple way. Teach your board and executives the basics of the market. Who else is going to do it?
Another person doing a great job teaching execs how the market works is hacky sack expert Clay Bilby, who found a creative use for the ModernIR stress ball from the NIRI Annual Conference box of goodies.
Which reminds me of a story. It’s holiday season, and it’s been a long year! We could all use a good story, right?
So our friends Peter and Bruce are the faces and feet behind the World Footbag Association here in Steamboat Springs. Peter said, “Did I tell you about the time I slept with Kevin Costner?”
After we recovered from the surprise, we said no, we had not heard that story. Turns out Peter was hired to teach Kevin Costner how to kick a hacky sack around for the movie Silverado. There’s a scene in this western packed with Hollywood stars where Costner is in a jail cell.
The plan called for Costner to whack the hacky sack around in his boots behind bars. They worked and worked on it, but according to Peter, Kevin Costner doesn’t have the hacky sack gene.
Weary from the effort and waiting for other scenes to be shot, Kevin says to Peter, “Hey are you tired? I’m beat. I’ve got a trailer here. You want to catch a nap?”
Peter said, “I could use a few winks.”
And so they went to Costner’s trailer and crashed for a couple hours. And that’s how Peter slept with Kevin Costner.
Alas, the hacky sack scene landed on the cutting floor. But the story lives on.
In a way, your stock is a hacky sack. It gets kicked all around the stock market, through 15 exchanges and over 30 alternative trading systems because it must constantly move to wherever the best price resides. That’s the law. Regulation National Market System.
It’s why more than 53% of trading volume in the S&P 500 the past week through yesterday – during huge index rebalances and options-expirations – was Fast Trading. The hacky sack players of the stock market, kicking the bag all over the place.
And they were the top price-setter the past five days.
Investment driven by fundamentals (Active), and flows from indexes, Exchange Traded Funds and quant funds (Passive) actually declined 6% last week, a key reason the market has been down. More hacky-sacking, less investment, stocks fall.
In fact, if supply and demand were perfectly balanced, stocks would decline. Why? Because the bid to buy will always be lower than the offer to sell, and 53% of the market’s volume comes from hacky sackers paid about a half-penny at a time to kick it around.
Also rising to over 18% of volume in the S&P 500 last week were trades tied to derivatives (Risk Mgmt). That is, 18% of the time last week in a given stock such as TSLA, a trade occurred because somebody had to buy or sell stock tied to puts or calls.
Add those up. It’s 71% of market volume. The remaining 29% was investment, about 9% tied to stock-picking, 20% following indexes, models.
That’s market structure. It’s no harder than hacky sack. Unless you’re Kevin Costner. And we’ll coach you. Just ask.
Resolve to make 2021 the year when your board knows what market structure is. But before that, we hope your holiday season, however you mark it, is full of joy and gratitude, peace and reflection, and cheer.
We feel those feelings for all of you. Happy Holidays! We’ll see you on the other side.
