What a difference a year makes. In April 2003 US troops crossed into Iraq and entered Baghdad. The monthly highs for the Dow Jones Industrial Average and Nasdaq Composite indices were 8,515.66 and 1,471.3, respectively – both dismally short of their record March 2000 levels. And as companies reported first quarter 2003 earnings, few saw an end to a three-year market decline that had hammered most stocks.
Yet by December the Nasdaq Composite was showing an annual increase of 50 percent and the Dow closed 2003 at 10,453.92, up more than 25 percent for the year. What a relief! Or is it? The continued rise in the averages in the first quarter of 2004 is causing some to speculate that the market’s current momentum isn’t sustainable. In one year, we’ve gone from thinking the contraction would never end to fearing another bubble will burst.
But is the sky really falling? It’s difficult to tell. Whether or not current data supports a likely market pullback, investors in this decade accept what seemed unthinkable in the last: markets will correct. So what can investor relations officers do to be as prepared as possible if the market turns sour?
1. Make a list of what worked and what didn’t
Until it hit, most investment professionals hadn’t been through a prolonged market downturn. In hindsight, what did your IR team do to address the market effectively during that downturn? And what might you have done differently? Did you reach out to analysts and investors soon enough? Did you articulate the business more vividly and still remain within your disclosure parameters? Did you need to present more information? No two lists will be alike.
Because people’s perceptions change under stress, it’s important to develop this list when the market and your mind are calm. Then you can share it dispassionately with senior management so your company can avoid previous pitfalls.
2. Know the hot buttons
In the over-inflated market of 2000, many IROs were at a loss to answer such basic questions as, What could make my top shareholders sell? Even in the face of today’s far greater market discipline, this remains a thorny question for some IROs.
Develop a ‘hot-button catalog’ for your top 20-25 shareholders. Many may not have been owners the last time the market went south. Even if they were, how does the 2003 appreciation mesh with their investment style?
Some IROs prefer to focus on only their top ten shareholders. That’s fine if none sell. But if half of your top ten exit, you have only five firms to talk to. Will that stabilize your shareholder base, if you don’t know the hot buttons for the next ten owners? If you need more information, plenty of firms and market resources track institutions and their reasons for trading stock.
3. Avoid timing your IR programs to the market’s swings
Use precision targeting. It’s almost impossible to find the market bottom. For IR, it’s probably not even useful – IROs can miss valuable opportunities waiting for the overall market to turn up or down.
Experience has shown that it’s far more productive to target investors with an investment horizon and philosophy that matches your company’s growth targets and likely returns. Having a ready supply of prospective investors who know your company is the best antidote to a market decline.
4. Think of your fiscal year as four distinct ‘action periods’
This is directly related to the previous point. Quarterly reporting is an enormous task that only got larger under Sarbanes-Oxley. With the associated conference call, quarterly reporting now absorbs a huge amount of an IRO’s time.
But it’s unlikely that reporting alone will be sufficient to create sustained differentiation in the market’s eyes. Hundreds of other companies will report the day after yours does, and they’ll want the spotlight, too. Highly successful IR programs create action periods in the 90 days between reporting events to meet investors new and old, present at investment conferences and develop media angles to tell the equity story.
These four steps won’t stop the market from falling. But they can make your IR effort more vibrant and resilient, regardless of market conditions.
