April 14, 2021

Which Way

In Lake Jackson, TX, you can take This Way or That Way.

No, really.  I snapped that shot Friday at the corner of This Way and That Way in LJ.  And yes, that rhymes.  And yes, it’s a metaphor for the stock market.  It goes this way and that way.

So the market goes this way and that.  So what?

Every time I hear that refrain, and I do hear it routinely from investor-relations professionals, I know how Copernicus felt. You tell people nothing is what it seems and the response is, yeah so what?

The single most important principle for life, business, investing, trading, pick your thing, is to exist in reality.  Everything rests on it.  Otherwise, we’re living in a fantasy, as Leo Sayer sang (okay, that was a love song but you get the point).

Traders never say, “Why should I care about that?” One EDGE subscriber sent me a note yesterday saying, “Thank you for your Monday morning briefings on Benzinga – we are learning things we have never learned before so it’s important!”

Investors by contrast sometimes say they don’t care because “our horizons are longer.”

That’s ironic to me because long horizons in the stock market are frankly abysmal, a reason why companies are growing privately and exiting publicly. Yes, the Nasdaq is up 40% over the past year, more from the depths of the Pandemic correction.  Even so it’s a 9% annualized return, minus taxes, commissions, inflation, the past 20 years.

Take out the trailing 12 months and you’re negative on your Nasdaq investment those two decades. I wrote last week about the effects of volatility. This is it.  Reality.

You probably feel like the people Copernicus told: “Do you want us to kill you now or kill you later?  Pick one.” 

Because what good is reality to me if it harms my interests?  That is, the IR profession would seem to depend on a) returns from equity investments, and b) the superiority of what you DO in the IR chair.

It used to be phone calls we made depended on what somebody was doing in the operator’s chair.  Travel used to depend on somebody who could drive a team of horses.  Streetlights used to depend on somebody coming by and lighting them.

Pick your comparative.

Do we think we’re telephone operators in this profession?  We better shut up about how the market works and hope nobody figures it out, because we might be obsolete?

Engineers aren’t obsolete, though we’ve had them through technological epochs. Same with mathematicians, chemists, physicians, scientists, accountants.  The rules and the technology and the application of skills change, but the centrality of value doesn’t.

You can’t cling to operating the switchboard like that’s the future.  

The IR profession exists to ground public companies in the reality of the equity market. 

I’ll repeat it.  Our profession exists to ground executives in financial reality.

That includes understanding how long-only money evaluates your financials.  But it also includes why Gamestop goes up 1,000% on nothing rational.

It includes why Direct Listings are cutting out investment banks.  It includes knowing why the Buyside widely pans the Sellside today, and why sellsiders want IR jobs.

It includes understanding how ETFs work.  When Passives rebalance and why. How derivatives are used.  What fosters volatility.  What liquidity means.  How characteristics drive quantitative investing. Behavioral factors that should shape equity offerings and buybacks.

How to position your company in front of “The Money,” whatever The Money is doing, because you understand what The Money does.

Like engineers and accountants and scientists, that kind of value never fades no matter which way the money is going – this way, or that.

Speaking of which, Broad Market Sentiment is peaking.  Options for April begin expiring Thursday.  The cycle stretches through next Wednesday with VIX expirations and new ones trading in between.

Big prime brokers have taken a beating.  Hedge funds are going to pay more to borrow money and take risk, and banks will be more reticent on the other side of trades after Archegos Capital.

What might happen?  Well, the market will go this way, or that.  But we have a pretty good read on the risk and probabilities, because we know what The Money is doing.

And we can help you know which way it’s going.  This way, or that way.

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