A few days back I got an SMS that was pitching fixed deposits with a company. The returns promised were as high as 14 per cent for a three-year deposit. Nothing unusual about this. However, the SMS set me thinking about the quality of the information that shareholders get about their company.
The reason is that the SMS was about a company with whose business I am reasonably familiar with. It had more debt than was comfortable. Adding debt at over 14 per cent would be ruinous in the business it is in. However, the point is not this particular business, it's about the channels of information that are open to shareholders.
The way things work, a company's management has shareholders' approval to raise secured and unsecured loans. However, there's a world of difference between a pro-forma approval and knowing what kind of money is being raised in what manner and at what kind of interest rates. Practically speaking, a shareholder has little chance of being able to get information like this at the time when he should.
The issue is not just about debt, but about the depth and width of investment research in stocks that is available. Sure, there's a great deal of research that is available from brokerages and analysts However, all of it is based on the same set of information companies put out.
It’s this information gap that is one of causes of the narrowness of activity and the short-term focus across our markets. It’s difficult for investors to trust the quality of information, and so it’s difficult to do anything but do anything but chase momentum.