Some thoughts for a rainy day
'I believe the US equity market is currently fully-priced,' says Rusty Page. 'And it's looking for a reason to correct.'
Page is an independent North Carolina-based IR consultant with some 23 years in the profession. Like many other leading commentators, he thinks that the long bull run cannot be sustained for much longer and that a 'correction' if not a crash is in the cards some time soon - possibly after a rate rise: 'Hopefully it will be a series of manageable corrections rather than a crash.'But it is not just in the US that the bears are beginning to growl. Attention in the UK has recently focused on the investment policy of asset management group PDFM. It has bet some $10 bn that markets in the UK and US are over-valued - and set to crash - by switching that amount into cash holdings. The bet has slowly been increased over the past year and a half so PDFM's clients have missed out on some stunning gains.
Assuming a crash does eventually come, how should IR officers react? Sit back and let the market take its course? Or get out there and tell shareholders all about it? Here are a few words of wisdom from IR professionals who experienced the 1987 collapse.
Rusty Page remembers the day well. He was with the president of Nasdaq at a national security traders convention. 'The meeting began and within an hour the room was empty,' he recalls. 'They all went back to the trenches and donned their helmets.' Page recalls that the fateful Friday and the following Monday were probably among the most sobering experiences of his life.
'There's nothing you can do. The market will do what it will,' he says, but adds that all good IROs should be at their desks as quickly as possible to answer any questions arising from the panic. 'You can call and comfort your main institutional holders,' he says. 'Reassure them that the fundamentals remain fine. Certainly, be there for them. But in the absence of that, proactively call them and let them know where you are.'
Page says that every company should have an IR plan for the aftermath of a crash. 'You should be sure you're making contact immediately,' he stresses. 'It's a buying opportunity for the institutions and you should be right out there in front of them talking about that buying opportunity.'
Indeed, it can also be a buying opportunity for the company. Bill Hartl, vice president of IR at Ashland Inc in Kentucky, recalls that his company had a big buy-back programme in place in 1987 and took advantage of the situation. 'We recognised that the world had not come to an end and saw it as a good purchasing opportunity,' he recalls. More generally, Hartl's principal advice is not to deviate from your normal communications programme.
Mike Reilly agrees. He was an IR officer at Reuters in New York in 1987 and is now an independent consultant in Babylon, New York. 'One thing investors look for is comfort,' he says. 'When the market falls that comfort is shattered and they are looking for security. I recommend that IR people rally around at that point and look on the adversity as an opportunity.'
Reilly believes that Reuters did just that and actually benefited from the crash. He says that there was a feeling among US investors that if they had held a wider array of non-domestic investments they would have been better protected. So Reuters seized upon that perception to increase its US shareholder base in the following weeks. 'Aside from that, we carried on as usual,' says Reilly. 'We didn't change anything on the schedule but obviously we were answering questions as to how the market movement affected our own business.'
On the other side of the Atlantic, Andrew Woods was watching some 4 pounds being wiped off the share price of Consolidated Goldfields. Today, he is group company secretary at Gestetner Holdings. 'There's not a great deal you can do except respond as positively as possible,' says Woods. 'You've just got to try to quell any rumours and speculation which might arise on the back of the crash. I'd say it should be a time for calmness rather than letting people's imaginations run riot.'
Paul Heward, director of IR at British Energy, notes that companies in sound financial condition will probably fare better - and bounce back from a crash quicker - than those that have hyped their story. He was at Argyll in 1987 and remembers that just before the market collapsed his colleagues had completed a 'very successful' convertible bond issue. 'It just shows you have to have remarkable foresight,' he adds wrily.
Foresight is not something which Professor Julian Franks at the London Business School wants to get involved in. He says that the 1987 crash was 'phenomenally unexpected' and is not about to make any predictions. When pushed he suggests that there is usually a big increase in market volatility before a crash: 'At the moment I just don't see the signals.'