At an industry conference I recently attended in Orlando, just down the road from that magic kingdom, there were no mouse ears in sight, but with all of the optimism on the stage one would have expected to see some cartoon characters. Granted that my industry went through a healthy downturn, begun by industry-specific events and then acerbated by the global financial crisis, so maybe the outlook from here looks pretty darn good. I’m just beginning to believe that optimism in business is an epidemic.
We can’t all be as pessimistic as Nouriel Roubini, or as prescient, but it is practically a requirement for people in business, particularly people representing publicly-traded companies, to be optimistic about the future. In the eternal efforts to boost stock prices CEOs have little to say about the future that isn’t rosy. Oh, they might caution. They might even revise earnings estimates (conveniently just one week before earnings are released). But by the time they have the earnings call, it will have been forgotten. Everyone just wants to hear how great the next quarter or the next year will be. It was the CEO of a company who gave the first presentation of the conference. All smiles when revealing the last slide with the dramatic chart, with the bars going sharply up and to the right.
But it’s not just company management; it’s the analysts as well. The people who we trust to be watching things closely, churning through 10-Ks to decipher the truth, to give us an accurate view on the health of the company, and to give us guidance on whether it’s worthwhile to invest our hard-earned money in the company’s stock. The analysts share the same sickness. By the time of the earnings release, the last quarter is the past—irrelevant. Tell me about the future. It’s all about the sequential growth, the year-over-year growth. As long as things are pointing in the right direction, the analysts will forgive all errors.
This previously-mentioned CEO was responsible for a $150 million capital investment that was cancelled--$150 million sunk, but did the analysts take the CEO to task? Did the stock get downgraded for management’s poor decision making? No. In fact, the stock went up after the announcement because the future was clear and understandable. The project was poorly timed and would have cost the company plenty if continued to completion. Good for them to call it quits, but the analysts never questioned the company’s judgment for wanting to do the project in the first place.
Maybe it’s personal. I was burned going into this downturn, predicting that things would not be as bad as some of the numbers were showing. Certainly, I didn’t foresee the way that the global meltdown would put a freeze on markets. Now I’m a little reluctant to think that recovery will be swift and hardy. My own analysis of the industry also produces a chart going up and to the right, just maybe not so steeply. Things within the industry are pointing in the right direction to keep the CEOs and the analysts smiling, but externally we still have plenty of unknowns. I don’t think I’ll be putting on a pair of mouse ears anytime soon.