Sometimes people refer to markets as if they were actually people. If you watch CNBC and Bloomberg as I often do, a commentator or Wall Street type may something akin to “the market thinks that stocks are overextended” or that “the world is awash in oil.” Where did this come from? As best as I can tell, it came from Benjamin Graham’s 1949 book, THE INTELLIGENT INVESTOR. He was more famous for his early book SECURITY ANALYSIS and for being Warren Buffett’s teacher in the Columbia M.B.A. program and his first real employer (I reread the Intelligent Investor annually with emphasis on his discussion of Mr. Market and also “the Margin of Safety”).
Graham essentially says that Mr. Market is bi-polar. He toggles back and forth between crazy optimism and downright despair. Graham says that there are times when Mr. Market offers you ridiculously high prices for your shares (no matter how small a piece of a business) and others when his offer is obscenely low. The trick, according to Graham, is to give your shares to Mr. Market when they are high, and buy more when he offers you little for them provided the underlying business is sound.
Some years back, I tried to use this approach with advertisers. In the 1970’s and in to the early “80’s, media pricing in broadcast moved pretty much in lockstep. In good times, all 200+ markets were able to mark their prices up and in recessions, prices fell across the board in a fairly predictable pattern. Since then, prices have been less uniform. Boom towns experienced booms and rust belt and rural areas tended to have little pricing power.
So, when recession or booms times hit, I would sit with clients and sometimes tell them to avoid certain Nielsen Designated Market Areas (DMA’s) as they remained pricey on a per person basis but go stronger in to other areas where things were so soft that we could find no bottom in pricing or receive great RELATIVE value.
This did not go over well within my shop. Management reps would tell me that I was walking away from easy billing. My response was that we were tossing money down the toilet as the prices were way too high and there were many markets out there where we could do well with recession resistant products and sell more cases given how much more bang we received for our advertising buck.
I would also suggest that we shift to radio as sales often skewed toward metro areas rather than an entire TV market. My internal critics saw me as a troublemaker. I wanted to do more labor intensive market by market work and sometimes cut budgets back until there was a return to normalcy in media pricing in certain localities. When attacked, I always said that I was thinking of the long term interests of the client(s). It generally did not play well.
In the early days of digital, a similar pattern occurred when players did not know how to price their on line properties. We witnessed some temporary spectacular bargains as well as ripoffs. Today, with more knowledge of delivery and huge players buying on exchanges, wild inequities are not so prevalent.
With conventional media, the Mr. Market approach still has some validity. A smart client may see you as a hero if you save them a seven figure sum and still increase case sales for their product. Just do not expect a warm welcome inside your shop unless management has a true long term horizon.
May I wish MR readers around the world, a very Merry Christmas.
If you would like to reach Don Cole directly, you may contact him at email@example.com