Prolonged economic and political uncertainty is having a weird effect on investors. Whether it’s the prospect of war or just abysmal share values that’s bothering them, decision-makers have been hit by a kind of psychological paralysis. Investment catatonia. The urge to buy or sell has been replaced with a collective indecisiveness. And market visibility, or the predictability of business cycles, just keeps getting cloudier. Like ships lost at sea, investors are looking for familiar landmarks to guide them back to equities.
For lack of a better signpost, many are now tying a market rebound to the indefinite, ever changing time line of global politics. If war comes, so the financial soothsayers tell us, the market will either sink further, climb quickly or maybe just stay the same. Thanks for nothing. World War II deeply embedded the idea that the war machine heavily influences domestic economies. Battles mean business. For now, however, the anticipation of things to come just means a disheartening economic slump.
There are certain things no individual can control – the global economy and war being two of them. So if the financial health and prosperity of a company is inherently tied to things we cannot control right now, then IR takes on a new shape. A lot of IROs have accepted this reality and started telling investors that they don’t know when results will improve because it depends on how quickly the economy recovers. That’s about as good as it gets these days in terms of visibility.
Some companies, of course, have decided to stop giving quarterly and annual earnings guidance because they want to deter investors from focusing on short-term results. Sun Microsystems, for example, believes that mid-quarter updates are no use when visibility is so poor.
While there’s been a lot of debate about the end of earnings guidance, it’s not nearly as fiery as we would have expected. Analysts aren’t stamping their feet and demanding guidance, or threatening to drop coverage of companies that stop giving it. That may be because guidance of any kind is hard to provide right now and they know it.
With the media focused on potential war and the miserable economy, these two obsessions have melded into one story about uncertainty. Eventually the fog has to lift and those companies that can manage the lack of visibility with grace and honesty will help guide investors safely into harbor. There are no secrets to weathering periods like this – just hard-won survival tips that have served well in the past. Sticking to what you know and communicating frequently are a good start. But you predicted that long ago, didn’t you?
