November 24, 2021

Most Important

The most important thing this week is gratefulness. 

We at ModernIR wish you and yours everywhere happiness and joy as those of us here in the USA mark a long and free tenure with Thanksgiving tomorrow.

Karen and I saw the Old South Meeting House in Boston, and the Exchange Building in Charleston last week.  For history buffs, it’s a remarkable juxtaposition.  The former gave root to the Boston Tea Party, the latter anchored South Carolina’s revolutionary role.

Mel Gibson’s character in The Patriot is based on Francis Marion, for whom a square and a hotel and much more are named in town.

Charleston, SC. Photo Tim Quast.

And on June 28, 1776, brave souls bivouacked at Fort Moultrie in Charleston Bay behind palmetto logs (why South Carolina is the Palmetto state) took shells lobbed from British warships that stuck in the soft wood and pried them out and fired them back, sinking two and disabling two more, and the Brits withdrew, the first defeat in a long war.

And the battle of Cowpens in Jan 1781 stopped the British in the south, cementing an American victory at Yorktown.

We walked miles and marveled at history on quaint sidewalks under live oaks. Also, we consumed unseemly amounts of grits, seafood and charming southern hospitality. We arrived concave and left convex.  Stay at the Zero George and dine there.

So, what’s most important to investor-relations officers, and traders, as we reflect this late November 2021?  While in Boston, I had opportunity to join a panel about alternative data for the Boston Securities Traders Association.

I told them I could summarize my twenty years of market structure with three words: Continuous auction market. At my advancing age, I think it’s the most important thing to grasp, because it gives rise to everything else.

I’ll explain.

In a continuous auction market, buying and selling are uninterrupted. It’s not really possible. At the grocery store, a continuous auction market would suggest the store never runs out of anything, even with no time for re-stocking. At least, in a declared amount.

Had you thought about that, IR folks and traders?  There isn’t a continuous stream of stock for sale. That condition is manufactured.

The SEC declared the stock market would never run out of at least 100 shares of everything.  Why? So the little guy’s trade would always get executed.  Consequences? It’s like that scene near the end of Full Metal Jacket where they huck a bunch of smoke grenades to go find the sniper.

The stock market is a confusing smoke cloud.  Let me give you some stats, and then I’ll explain what they mean. First, 70% of market volume in the S&P 500 is either Fast Trading, machines changing prices, or equity trades tied to derivatives.

So only 30% is investment. Yet over 40% of market volume is short – manufactured stock intended to ensure that 100 shares of everything is always for sale. So what’s fake is larger than what’s real.

Plus, 80% of all orders don’t become trades, according to data from the SEC.  And 60% of trades are less than 100 shares (odd lots).  The stock market is mist, a fine spray of form over substance.

What does this mean for all of us?  You can’t tell the Board and the executive team that investors are setting your price, IR people. Yes, it happens. But it’s infrequent. Most of your volume is the pursuit of something other than investment, principally price as an end unto itself (TSLA trades a MILLION times per day and moves 5.5% from high to low daily, on average).

And traders, it means technical signals work poorly.  They don’t account for how many prices are false, how much volume isn’t investment.

Thankfully, there’s a solution. If you understand the PURPOSE of the stock market – to create a continuous auction – then you can understand its behaviors and sort one from the other to see actual supply and demand.

Public companies, there is no other way to delineate Controllables from Non-Controllables. We can help. We’ve done the time, the thinking, the work, so you don’t have to.

And traders, you can trade supply and demand, rather than price.  Vastly more stable, less capricious, duplicitous, cunning.

I’m grateful to know that. And I’m grateful for rich and rewarding time on this planet. All of us have travails, trials. It’s part of life. But it’s vital to consider what’s most important. 

Happy Thanksgiving.

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