Saturday, July 17, 2004

Optimism and Pessimism

It is interesting to observe companies (executives) making optimistic or pessimistic statements about the company's prospects.

In the current environment, there is a sense that many executives are trying to avoid over-optimistic statements. Recent results from WPP (the advertising and media giant) have been surprisingly downbeat. (Perhaps an advertising company has to try even harder than everyone else to avoid the appearance of spin.)

I wonder whether this reflects a more general caution or risk-aversion, or whether it is merely because of a new sense of asymmetry (directors can go to prison for optimism, but not for pessimism).

It also conveys an appearance of longer-term responsibility and confidence - we are not going to talk up the company - the results will speak for themselves, eventually.

In March 2004, WPP published a rather cautious statement, and the share price fell. But a week later, when another media company issued a much more optimistic statement, it was the WPP share price that then rose.

Meanwhile, Shell has been trying to retract some previously optimistic statements about oil reserves. The share price and the executives have been heavily punished.

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