November 28, 2012

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.

These data are like a two-dimensional barcode packed with details. Passive money in models pushed price up. They did it to manage risk. And neither speculative trading nor rational investment was a driver.

It’s not exciting, like a rumor on trading floors that some big institution is building a position and UBS is executing the orders. But it’s accurate. Data abound around you and your equity, forming a mosaic of how your shares look to the money out there browsing – and what kind “clicks through.”

You can know these details by observing what’s happening around you with statistics and metrics (just like you provide to your investors).

Do I love a world of barcodes and data cookies? I like visiting the quiet sage in southeastern Colorado where the “best Indians,” as one officer who refused to commit his troops to the slaughter later wrote in a letter, died. It’s melancholy and meaningful. Real.

But realistic human beings make better decisions when armed with good data. The space around your traded shares is a treasure trove for drawing conclusions and setting expectations.

That’s as valuable in IR as it is in web advertising. Or plain old life.

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