Markets worldwide have ‘corrected’ over the last few months. Not crashed. Corrected. The terminology seems to have changed this time round.
Crashing, of course, would imply some form of irrational behavior on the behalf of the big institutional investors which largely determine the value of markets in today’s world. And we know that can’t be true. We’ve all seen the mathematical models and advanced techniques they use.
No, correction is a far better term. It implies that things were under control all along, fund managers knew where they were going. The steering wheel just needed a little bit of a nudge to bring it back on course. ‘Well it was a correction that was just waiting to happen,’ goes the line. ‘Everyone knew Hong Kong was over-valued. Everyone knew the political risk in other Asian markets. And the western bull had been raging for just too long.’ Oh the power of the market.
It also implies that, despite all of today’s valuation techniques and investment models, fund managers are still up for a gamble. Common sense and bearish bores may have suggested that valuations were too high long ago. But why switch to cash when markets are still roaring?
It’s an understandable temptation to stay in a stock too long, institutional investors are only human after all. If you cut the business science, the truth is that no amount of pre-planning and shareholder value management can absolutely ensure that a business venture succeeds or fails. Sure it helps, but if it was 100 percent certain there would be no market, no risks for investors to take and no rewards to reap.
Does this mean IR is worthless? Far from it. The skill comes in developing relationships and targeting the people who are more inclined to be interested in your story, more inclined to believe in the ability of management to see a plan through. And relationship-building IR can really come into its own in a bear market.
Investor relations executives feeling threatened by bearish sentiment should therefore see it as an opportunity. Lower valuations could mean buy-time is back for your stock. After the market dust has settled is the time to get back on the phone. Talk to old institutional friends who need a bit of hand-holding in a time of crisis. Make new institutional friends because your revised valuation brings them into your circle. Get people back on side and then wait for the next period of bullish sentiment to take over.
