I’m going to go out on a limb here and say that this financial crisis was totally avoidable.
No, not the popping of the Greenspan debt bubble — that was inevitable — but the slamming of the stock market in its wake. This recession and destruction of financial firms was certainly probable – if not likely – and it caught most publicly traded companies completely off guard.
Financial advisors are paid to manage portfolios for any eventuality (hopefully). If there is an X% chance of Y happening, the portfolio should take this into account and reflect a particular stance.
So, too, Investor Relations.
Financial communications to investors should be managed with the same risk management that people managing investments employ. There’s too much finger-pointing, sitting on hands and pulling back in financial communications — especially during these crazy times.
Ultimately, all this means that investors are left holding the proverbial bag — and the bag is certainly a lot less full than it was 12 months ago. And what’s worse is that companies are retracting their lifeline with the investing public just when we need it most.
Couple of salient data points:
- 60% of respondents provide earnings guidance compared to 64% in 2008.
- The primary reason cited for ceasing earnings or other financial guidance within the last 12 months was due to a change in visibility / forecasting ability of business. (emphasis mine)
While a 6+% year-over-year drop in companies offering earnings estimates is not catastrophic, it’s not encouraging either, especially giving its timing. It certainly is harder to communicate guidance during tumultuous times because guidance becomes so much harder to gauge. But the same NIRI survey also shows there’s been a pullback in all types of guidance, including non-financial guidance.
With banks cutting their research staff, newspapers going under, and ad-supported financial content having a harder time of it, investors are left with at least one traditional, valuable source of information — companies themselves.
It really is an opportunity for companies to distinguish themselves by providing straight information, timely communications and no-nonsense bull. Investors deserve it.
Don’t forget to subscribe to receive free daily updates from NewRulesofInvesting.