Capital Market Aphorisms & Meditations

1.

“Having opinions is like having fish. If you go fishing, with luck, you’ll catch your own fish, or your own opinions. I speak of live opinions, and live fish. Not the fossils that satisfy most people, i.e. ‘convictions.’” (317G)

2.

“Become who you are.”

Whatever the value of this counsel in a personal context, I’ve found it’s particularly apt in an investment and financial one. Many, many companies brand and promote themselves as something they really aren’t, at least in terms of their business models.

This is one reason that disclosing financial results creates issues, even when performance is strong (cf. Nvidia’s situation this August). So, follow the money, the opportunity for money, and the costs - and only then describe or improve how you go to market. If this sounds like common sense, that’s because in a for-profit business reference frame, it is.

Yet often companies don’t market what they truly are, financially. They market products, and they assume a product-related identity is the primary and best definition of their business, alongside their values.

In fact, businesses are not only what they sell and say they believe. They are also their unit and market economics (and a few other key parts of business model discoverability). To compete more powerfully, and enjoy a more resilient, higher multiple? Become who you are - at the least, according to good FP&A.

3.

“…seeing things as similar and making them the same is the mark of weak eyes.” (228G)

This is the weakness and the strength of the capital markets and also of algorithms. Or, the double-edged sword of how pattern recognition - one of the great human and also machine superpowers - actually gets applied to investing.

Just because there’s a similarity or pattern doesn’t mean that what’s being observed is the same, or should become so. It’s a truism and complaint that Wall Street invests by analogy. Ditto, VC’s, though they have slightly different analogies. This challenge unfolds for many companies when investors and/or algos see business performance patterns and assume the underlying businesses are basically the same.

If you’re on the winning side of this - e.g., the standard by which others are judged, great. But if you’re not? Endless valuation pressure. This is why companies should, among other things, “market their markets” aggressively, repeatedly and in real time, in order to define reference frames in their own terms.

Wall Street, its algorithms and even Sand Hill Road often have weak eyes. The best, highest-multiple companies make that near-sightedness work in favor of, vs. against, how stakeholders value their businesses.

4.

“Many people are obstinate about the path once it is taken, few people about the destination.”

I’m sure this one is plastered on a faux-artisanal, country-kitchen sign somewhere. That doesn’t make it any less true in the context of investor relations and equity valuations, though.

Founders and CEOs are famously stubborn about destinations. This is why at their best, they achieve iconic outcomes. It’s ironic, therefore, that so much IR is mostly about the path.

We note elsewhere how hundreds of companies still rely on investor marketing that was cutting edge in the 1970’s. Private companies, once they’ve been funded, often fall into this path-vs-destination trap as well. The investor marketing path is long overdue for a transformation - and the most obvious and available options today offer superior support Board and management team destinations. Sometimes, change is good. This is one of those times.