- 8 August 2024
- Michael McGrath
I was struck by an article in the 1AFR on Tuesday (6th August) in which Sarah Jones, Jonanne Tran and Jessica, observe “Share Rout” and “Global Growth forecasts have been shredded.”
The piece was inspired by the recent performance of the ASX 200 and other markets and the plethora of doomsday analysis that inevitably accompanies such market corrections.
Our Negative Bias
I was remined of a blog I wrote in August three years ago where James Weirs correctly observed that we as humans are hard wired towards negativity.2While this negativity was extremely useful for the survival of our species and a very useful trait when trying to avoid becoming a sabretooth tiger’s lunch, it’s perhaps not so helpful in the modern 24-hour news cycle!
The media is aware of our tendency to respond to the negative – hence their inevitable negative OTT headlines. To help balance up this tendency, many of us have resorted to limiting our news digestion. I read hardly anything on a daily basis, a quick scan of the paper, and a 15-minute weekly round-up honing in on the facts. The interesting thing is that it turns out there is only about 15 minutes of actual news per week, spread out across the 24/7 news cycle which is largely on repeat. The media are so hard-up for actual news that they have resorted to interviewing each other, fellow journalists and a variety of so-called experts (that normally fit with whatever negative narrative they are pushing). This helps to catastrophise any number of borderline news events.
Listen to an expert or flip a coin!
Now don’t get me wrong – I love having a free press – but the analysis and the experts that accompany the news should often be taken with a pinch of salt. This is the point, well made by James Wier. A survey by US firm CXO looked at 6,582 forecasts published by 68 different gurus and found a success rate of 47 percent – so you get better odds tossing a coin than listening to the experts on the news!
Is it a good time to sell?
We are often asked at Oasis Partners, when there is market volatility or other geopolitical uncertainties, whether it’s still a good time to sell a business. The reality is that we are selling most of our clients businesses to much larger corporate acquirers where there are strong synergies and reasons to do a deal – the average revenue of the last ten acquirers was $3.9billion – our clients are typically a fraction of that! Interest rate movements and corrections of less than 5% from an all-time high aren’t a factor in their thinking when they have decided there are strong reasons to acquire. Sentiment, never helped by exaggeration, can make it difficult for aspirational acquirers needing to borrow money to do a deal. These guys rarely feature for us, as our clients insist on a fair price which normally rules out the more opportunistic buyer. The difficult bit is finding the most strategically motivated buyer at a point in time – more on that in a later blog!
Here’s my takeaway on the negative news cycle for what it’s worth. Listening to conversations in the media about sabretooth tigers significantly increases the odds you might mistake next door’s cat for one!