Ever set an unrealistic goal?
There’s the joke about the Bedouin wandering the desert lost and parched who finds a genie. She grants three wishes. He asks to always have water, to be surrounded by females, and to be clothed in raiment as fine as porcelain. He’s turned into a toilet in a women’s airport restroom.
Lesson: goals matter.
I joined my Denver NIRI colleagues yesterday for an economic assessment from Alison Felix, head of the Denver branch of the Kansas City Regional Federal Reserve Bank. We saw lots of slides on economic data. We in the IR profession know data. We sort good charts from bad ones.
I don’t care how you spin it, those charts left us thinking that the Fed may have unrealistic goals. Notwithstanding the economists who claim that money for nothing isn’t only a good name for a rock tune but a model for modern monetary policy, you can’t cure what ails by giving everybody a dollar and a genie. It’s wishful thinking. Genies are fictitious. Money for nothing is a line Mark Knopfler and Sting wrote on Montserrat, an island made rather less hospitable by volcanic eruption (a lesson, monetarists).
I’m sure you’ve pondered how to measure the worth of IR. I spent four years in the IR chair working for a CFO who expected goals. Measuring worth in IR is our whole goal at ModernIR.
Goals are essential. If you want to ride 100 miles on a bike faster than 99% of the people on the planet, you won’t do it by rubbing lamps or daydreaming. It’s work. You have to set down objectives. You have to learn what your body is capable of delivering, what its weaknesses are, how to fuel it, how to breathe, how to endure.
Thankfully, success in the IR chair doesn’t demand endurance. Just realistic goals and good metrics. I believe the best IR goal is a fairly valued stock, a well-informed equity market. You can’t control the management team, economic cycles, or the stock price. But you can communicate well. Inform the market, and let it speak back to you.
The problem is how do you measure that? You can run a model that says our peers are doing X, our cash flows are Y, the sum of the parts of our business is Z (comparables, cash flows, net worth).
The longstanding physics precept called the Heisenberg Uncertainty Principle says there’s a limit to precision in measurement. It’s a heuristic argument – experience-based. It won’t be flawless, but if you’re living it, it’s more accurate.
So the ultimate IR goal – a fairly valued stock, a well-informed market – cannot be measured successfully in the lab. The market must give you an answer. It’s not market price. That’s a collage of every price-setting authority. Only one slice from many evaluates fundamentals and assigns a discount rate for what’s involved in competing for shares. Remember, 85% of your volume is moving stuff around. Navigational.
You have to find that slice. We have. We call it Rational Price. Statistically, we can defend it (good metrics). If you don’t know your Rational Price, you should.
