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The New Normal: CEO Tips You Don’t Often Hear

  1. For private companies contemplating an IPO, be certain you want to be public for a long time. Don’t look to the IPO as an “exit,” rather as a “partnership” with public investors.
     

  2. While it takes guts for CEOs to commit to long-term planning, it is crucial to do so, since public investors are more short-term oriented than ever. You have to give them reasons to stay.
     

  3. Shareholders are quite a diverse lot, although they often like to present themselves as uniform. In order to secure their confidence and their votes, you must know more about your investors than they know about you.
     

  4. Public company CEOs have gotten fat and lazy in terms of compensation, helped by so-called professional comp consultants. But compensation in the public company today, ever the topic of cocktail banter, is much more like the private equity approach with its specific metrics and goals—at least it should be.
     

  5. There are two kinds of board members, those who “get it” and do the work, and those who don’t, instead keeping their hands clean and hiding behind not wanting to “meddle” as an excuse to stick their nose into things. The time required to properly serve on a board today is at least five times what it used to be.  Meddling required.

 

Roger Pondel, rpondel@pondel.com
 
 

Reading Between the Lines

When I was a kid, one of my father’s many recurring jokes was: “If it’s raining and you want to stay dry, just walk between the drops.”  Sorry Dad, it wasn’t that funny, and, of course, it wasn’t even possible.
 
It is possible, however, at least interpretively, to read between the lines of some of the negative economic news these days and find something favorable.
 
For example, take comments published in the Wall Street Journal from London Business School finance professor Elroy Dimson on long-term investment returns:
 

  • “Stocks may face a long road back.”
     

  • “There’s no guarantee of a quick rebound.”
     

  • “We’ll have to wait nine more years before the Dow Jones average has a 50% chance of hitting its 2007 highs.”
     

  • “It may be a long time before investors are again willing to value stocks at much higher than the long-term average of 15 times earnings.”

 
U N C L E!  Enough already!  OK, so here’s the silver lining between the professorial comments: 
 

First, if, as the good professor professes, the Dow Jones average will double in nine years, that will signify a total return of 7.5% per year. Try to get even close to that by stashing your money in a bank account.
 

Second, for more than 100 years through 2008, U.S. stocks have averaged an annual 6% return after inflation. Not bad either.
 

And third, there are many stocks of solid companies these days that are trading well under 15 times earnings, leaving plenty of room for appreciation.

 
So be careful, but jump in already. The water’s not that bad.  Just don’t try walking in between the raindrops.

 

Roger Pondel, rpondel@pondel.com