Wednesday 2 November 2005

The market usually gets it right

In the 22 years I’ve been doing my present job, I’ve only ever had one client who thought that his share price was too high.

Like those lonely men who prop up bars around the country and slur at passing females, the typical chief executive feels that ‘the market doesn’t understand me’.

In many cases, his wife doesn’t understand him either, which is why he has to trade her in for a younger and blonder model when he’s approaching the male menopause. But that’s another story.

His share price isn’t high enough, his share options are under water, and if only he had a better PR adviser the market would finally get the message.

Top executives these days don’t just want the money, either. They want high profiles because they crave recognition - and not simply in the form of gongs. They now feel they deserve the sort of respect accorded to lifeboatmen and intensive care nurses.

After all, as one of them said to me the other day, who creates the wealth that pays the taxes that buys the scanners and trains the oncologists? Our business leaders aren’t just creating jobs, they’re curing cancer.

Well, up to a point, Lord Copper.

A little while ago I performed a verbal makeover on one of these much misunderstood companies, emphasising the positive aspects of its positioning and strategy, which had indeed been understated in its previous announcements.

A colossal profit warning and the resignation of the chief executive followed within two months.

The market hadn’t exactly seen that coming, but it had been very right in its cautious valuation. It’s an imperfect mechanism but, as every communist state bar North Korea has now recognised, it’s the best one we’ve got.

The imperfections include a short memory, given that anyone of my age still working in the City is either a fanatic or a failure. The successes are sipping daiquiris by their swimming pools or surveying their rolling acres in the Cotswolds.

So it can make mistakes and even lapse into periods of collective hysteria like the ludicrous dotcom boom.

But, as a rule of thumb, if you see a share price that looks way too low, it’s usually better to be asking yourself what the market knows that you don’t, rather than wondering how it can possibly have missed such a fantastic investment opportunity.

Keith Hann is a PR consultant and cautious investor.

Originally published in The Journal, Newcastle upon Tyne.

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