October 5, 2009

Stock Surveillance Batting .290?

The New York Yankees led the American league this year with a team batting average of 29% (.290). Is it just curious coincidence that IROs and CFOs polled for the October issue of CFO magazine gave their stock surveillance firms a 29% batting average too?

CFO magazine teamed with NIRI to assess shareholder identification efforts. Results revealed that fully 50% of respondents use stock surveillance but only 29% are very confident of findings. Paul Schulman of proxy consultancy Altman Group summed up: “CFOs may think they have an idea of who owns their stock, but when it comes to real-time knowledge, they really don’t.” Okay, we’ll say it: we are stupefied that IR departments en masse expend scores of thousands of dollars on information they believe to be right only a third of the time.

Anyway, a loud lament is the great gap between timeframes for regulatory filings like 13Fs and 13Ds versus the peripatetic way of the equity markets now. Investors and IROs rely on outdated information (we’ll step out on the bough and say that these ridiculous gaps actually mean that SEC requires investment firms with assets exceeding $100 million to furnish incorrect data to investors, as these position reports may bear no relationship to current reality).

There’s a larger issue and it’s yet again illustrative of how IROs should consider updating their thinking rather than frustrating their IR strategies and budgets with anachronistic measures and tools of limited reliability. It’s this: if investors are engaged in efforts to conceal themselves…could it be that they don’t wish to be known? Hm. Perhaps they’re running multi-asset products that don’t turn anymore on relationships or fundamentals alone. And if so, what fruit should an IRO expect from efforts to establish a relationship?

In context, we saw fascinating developments in our sample data pool during the first week of October. October 1-2, we observed broad program-driven and algorithmic strategies, but as the markets continued to behave in unexpected fashion, these strategies dried up and gave ground to short-term, highly speculative tactics—which would never show up in either stock surveillance or 13Fs, by the way.

We’ve used this comparison before, but what if geopolitical counterintelligence relied on hearsay and ignored satellite reconnaissance? It would be…odd. Satellite images are indispensable now to everything from geological surveys to spooks. It’s modern technology.

Be sure to read the CFO magazine article – Who Owns Your Stock?. And if you’re not using the equivalent of investor relations satellite imagery to understand the forces at work behind your volume, you’re trying to operate pre-Sputnik in a decidedly post-Sputnik era (apologies for any mixed metaphors).

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