Monday, April 2, 2007

What Kind of an Analyst Are You Dealing With?

What Kind of an Analyst are You Dealing With? (Part 2)

Today’s discussion of analysts relates to a type I refer to as “The Elephant Hunter”. This is a person who is searching for “the next big thing”, a killer investment idea that will overwhelm mere fundamental research.

The elephant hunter is really not interested in seriously looking at your company unless you have a reason to significantly stand out from the crowd. In a sense, this analyst is the ultimate believer in the efficient market – all pertinent information about your company to date, earnings, press releases, type and quality of your management, has been incorporated into your stock price. The only thing that matters is the very new, very different project that you are about to embark upon and that the analyst sees as a game changer. In other words, the elephant peeking out from behind the bushes. Only upon discovering this amazing new prospect will the analyst bestir themselves to change their opinion about you or recommend your company to their portfolio managers. They want to bag the big game, or to mix my metaphors, hit the home run by recognizing when the company is doing something new and different before anyone else does.

So what’s a poor IR person to do? (Except sing in a rock & roll band – oops, sorry, occasionally old rock lyrics will pop into my head.) Well, the first thing to do is to try and control your blood pressure. Just because earnings are up 15% is not enough to merit a change of opinion with this type of analyst. Then, see if there is a “hook” to your story. There has to be a hook for this person to get excited about. “Earnings are up because of good expense control” won’t do it. However, “Earnings are up because we installed industry leading software to better track and control our expenses which represents a quantum leap over the competition” might do the trick. Secondly, remember that elephants don’t happen along every day. If there is no big, new opportunity, then as they say in New York, “Fugetaboutit.”

Hope you enjoyed this piece. For all you analysts reading this, rest assured that in my next post I intend to take company managements to task by discussing the species, “Managentus Imperialis”.

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