Not all those who analyze business and follow its ups and downs are necessarily movers and shakers, or even real players in the game. Some that intimately understand the workings of business, and able to offer good insights and predictive calls, are just staying on the sidelines. And they are not necessarily in the academe or media, both groups too far in the bleachers to see the plays, and often repeating stories that have been fed to them.
The active observers on the sidelines pick up morsels of information, rumors, overheard conversation in boardrooms, insider takes, business news, and public disclosures. With such bits and pieces, they are able to connect the dots.
Real players seldom give their take on the goings on in their field, especially when involving their companies. They don’t grant media interviews until the story is over. Only chefs and small entrepreneurs who are drumming up business get in front of the TV cameras and give their views of their sector — local ingredients are on the rise.
The sidelines are sometimes the preferred position for those playing the market. It’s where they choose to stay. In cycles of volatility, defined usually as a downturn, the smart money can stay on the sidelines and wait for better buying or selling opportunities to pounce on. (Cash is king.)
In mergers and acquisitions, the prize being sought can be sizeable enough to merit interest from the sidelines. This could involve a third player in a duopoly looking for a credible local partner, ratcheting up the prices of listed (and previously dormant) companies. The contenders are vaguely identified as second-tier players. Rumor mongering becomes a business strategy. Purchases of a particular stock by a massive number of investors, including identified whales, can lure on the sideline observers.
Commentators determine success not only in terms of getting the prize but also in how much (usually in terms of money and reputation) it took to beat the other contenders. This is like fighting off bullies for a bag and then finally getting it and being declared the winner. But what if the prize turns out to be a sack of horse droppings? Then all the body bruises and broken fingers seem too much to pay. Here the winner is left holding the worthless bag. This situation is known as the winner’s curse.
While not real players themselves, those on the sidelines cheer for their teams with the passion of rabid fans. They are tempted to place their bets. The distaste for risking money you can’t afford to lose is not as distasteful in business as it is in gambling. Big bets are accepted as a routine part of the game. They are considered gutsy plays.
What is an investment in a stock, after all, if not a bet on the management and its prospects of winning? The bets are reflected in the ups and downs of stock prices not only of the target company, but also those of the contenders. Thus, sell-offs of the losing (or winning) party happen even before the contest is decided, or publicly announced.
Are those on the sidelines privy to information not available to the public?
Business frowns on insider trading, especially for publicly listed companies. The principle of an even playing field presumes equal access to information. Hence, the rules on disclosure and trading halts are intended to provide transparency. (We are not aware of any developments affecting the unusual surge in volume and price of our company.) Any advantage in undisclosed information is akin to buying a referee or one player to intentionally tilt the outcome of a game. Maneuverings behind the scene play a significant role in business. It’s always too late to place a bet once the move is publicly disclosed — buy on rumor, sell on news.
Staying on the sideline does not always mean not moving out of it. The observer can simply watch the action, or decide to jump into the fray. When he becomes a player, he may find it hard to go back to being a simple observer. He is elbowed and bruised, eventually carried away… forced to go back to the sidelines.
A. R. Samson is chair and CEO of Touch DDB.
