Thursday, May 10, 2007

The Death of Investor Relations?

The Death of Investor Relations?

The basic premise of investor relations is simple and works in conjunction with the efficient market hypothesis. In short, good investor relations helps to bring clarity to how a company makes its profits and its future prospects for earnings. The market assimilates this information, together with all other information and arrives at an appropriate valuation for the company’s stock. In short, the more information available, the better the value of the company is reflected in its stock.

There is however a curious phenomenon occurring at least with respect to one company; Sears Holding Corporation is saying less and being rewarded for it. I call it the Mies van der Rohe school of investor relations. (For those not blessed with a liberal arts education, van der Rohe was one of the founders of the modern school of archtecture and one of his more famous sayings is “less is more”.) If you look at Sears’ public disclosures, they file a press release and a 10 Q or 10 K. And they post a lengthy letter from the chairman on their web site. That’s it. No conference call. No PowerPoint slides. Not even (heaven forbid) an investor relations contact person. It’s as if Sears is saying, “It is what it is – figure it out for yourselves”.

And how has the market reacted to this lack of detail? In the past year the stock has gone from $145.43 to $178.31, a gain of 22.6% on operating earnings that are up 18.8%. In short, the lack of detail appears not to have harmed the stock at all.

Now, I’d be the first to tell you that one company does not a trend make, but consider that Sears Holdings’ chairman is Eddie Lampert. Mr. Lampert has a history of being on the cutting edge of things: his hedge fund, ESL Investments, was one of the early hedge funds and was also one of the first hedge funds to become an activist investor, first with Auto Zone, then Kmart and now Sears.

Investor relations officers, watch out. Could it be the smart money is saying that more transparency is a sucker’s game?

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