There are no guarantees, but there are things that financial managers can do to steer clear of trouble, especially when the economy goes sour. Here are some tips from Manship Media Group CFO Ralph Bender. ”Maintain your focus and discipline and be intelligent about the risks you take," he says. "Hopefully, other than that, life will be a party.”
Staying Safe In A Risky Financial World
With year-end tax planning on the minds of the industry’s financial managers, as well as those of individual investors, I thought you might be interested in some tips from MFM board member Ralph Bender, CFO of Louisiana-based Manship Media Group, which owns TV and newspaper properties.
Ralph’s insights were inspired by a presentation from Niall Ferguson, author of A Financial History of the World. “While at times he was very sobering in his views on the economy and the future,” Ralph said, “he also offered several tips that made sense for any investor, institution, business or individual. It made me think that perhaps more often than not the key to our long-term financial success does not depend on our views of geniuses like Adam Smith, John Maynard Keynes or Milton Friedman, but rather, the application of simple common sense rules.”
Here are the investment rules Ralph recently shared with MFM members in a Last Word column that appeared in the September/October 2010 issue of MFM’s The Financial Manager magazine.
Watch your liquidity. As we know first-hand, financial markets rise and fall. By anticipating our cash needs, we can avoid situations that require us to sell during a downturn, which can result in turning paper losses into realized ones. Most financial managers have heeded this axiom by building up their cash reserves during the recent recession. As Ralph observes, “Our parents’ generation learned about saving for a rainy day from the Great Depression. They didn’t get to be older without becoming wise.”
Whether it’s for yourself or your company, Ralph recommends that your first investments be in a vehicle that is as immune to crises as possible, such as CDs and money market accounts. The amount invested in these funds should be enough to get you through a crisis. The remaining investments do not need to be as liquid, since they can be held for a longer term.
Balance-sheet strength matters. “If we learned anything from the tech crash in the ’90s, it’s that good investments offer more than a mere hope and prayer,” Ralph observes. “And a company that is not financially healthy is a considerably greater risk for failure than one with a balance sheet that can weather a storm.”
This advice is supported by the following observation from then-president of the National Association of Corporate Treasurers Edward Liebert, who told CFO magazine “You can miss your earnings targets and survive, but you can only run out of cash once.”
We are all connected. “We may not like it,” Ralph notes, “but Fleet Street, the Champs-Élysées and Main Street are more closely connected than we ever imagined.” As a result, he believes we must increasingly be concerned about not just the financial stability of the companies where we are invested, but also the financial instability caused by geo-political issues, such as currency fluctuation, political instability, the impact of natural and man-made disasters and “that age-old scurvy, war.”
“Those of us living in Louisiana know too well the mayhem that can easily occur due to force majeure or the ignorance of mankind to heed warnings,” Ralph remarks.
MFM members heard essentially the same message last spring at Media Finance Focus 2010, our annual conference. We were told by a leading economist that the one thing that could unravel our economic recovery would be a credit crisis in Europe, since many bank loans to corporations are tied to LIBOR — the London InterBank Offered Rate. This rate is based upon the average interest rate charged when banks in the London interbank market borrow unsecured funds from each other.
Financial innovation helps Wall Street, not Main Street. Ralph observes that “The people directing our financial centers are not in the nonprofit business, and someone must pay their way.That would be you.” He goes on to point out that “throughout numerous upheavals and the creation of many agencies, small investors still seem to be those unprotected when scandals occur.” Recent history would certainly bear that out. In an article prepared for the December issue of the International Journal of Central Banking, former Fed Vice Chairman Alan S. Blinder observed: “Just like the traders and sales personnel who work for them, top executives of corporate financial institutions derive the lion’s share of their compensation from bonuses that are normally linked to the firm’s annual profits.”
Get a map of Washington. While there will be many viewpoints concerning whether or not certain regulations help or hurt businesses, Ralph reminds us that government agencies and polices affect our personal and corporate financial investments. Those of us in the media industry have a better appreciation than most of the impact that federal regulation can have on stock values.
Simplicity is a virtue. This axiom is directed toward the importance of transparency. Ralph encourages us to recognize that good companies want their investors to understand their goals and easily track their progress in achieving these goals. In contrast, he warns, we need to remain leery of those that complicate things and are unwilling to answer legitimate questions in a manner that the average investor would understand. “In the end, it’s real simple: businesses create, make and sell things. If you don’t understand the opportunity, there will always be others.”
If it sounds too good to be true … “Every now and then an invention comes along that defies the imagination: the telephone, the light bulb, perhaps the wheel. But for a company to be successful and your investment to have a long-term value and return on that investment, there must be a long-term, successful application of the company’s products that will generate revenue and profits for investors,” Ralph says. This consideration is second nature to the industry’s financial managers, who rely upon extensive research and business modeling before investing precious capital into a new venture. As investment author and media commentator Jim Rogers often points out, smart investing is doing enough research and being so certain in the investment that it should be like walking across the room and picking up the money.
Don’t reach for yield in a money market. Ralph uses the lessons from the Bernie Madoff and Stanford Investments scandals to drive this point home. As his last point addresses, independent and thorough research is required. To use Jim Rogers’ metaphor, we can’t let our desire to envision that money in the corner to replace the analysis that’s required for actually finding it.
We will have other crises. “Nothing good lasts forever,” Ralph reminds us. “Whether it’s the growth rate of a business or the cycles in the market, nothing is ever guaranteed.” Of anyone, individuals who work in the media industry should certainly appreciate the cyclical nature that affects virtually all businesses and economies. While it would be nice for 2011 to yield the ad revenues we experienced this year, the record-setting political ad buys won’t be there to drive those same results next year.
The world doesn’t end that often. In his last point, Ralph notes that while bad things happen, “the sun will still rise in the East. Investing is a marathon not a sprint. Develop a long-term strategy that helps you through the crises and corrections.”
I think we can also apply this advice to the outlook for traditional media. There never seems to be a shortage of analysts who look at the trends affecting audience share or paid subscriptions and extrapolate the data to predict the demise of an industry. The broadcast television industry looks, and operates, differently today than when it was in its infancy. As a result, viewership of television programming continues to expand, both in terms of the hours of viewership and the places where TV programming can be enjoyed.
“While there is no surefire rule of thumb, I’ll summarize this way,” Ralph concluded. ”Maintain your focus and discipline and be intelligent about the risks you take. Hopefully, other than that, life will be a party.”
Ralph, a former officer of INFE (Interactive & Newsmedia Financial Executives), worked on the association’s merger with MFM. We are delighted to have his Bayou-garnished wit and wisdom serving our members.
Additional Resources for Financial Planning
In addition to sharing Ralph’s rules, MFM will be offering an accounting issues seminar to assist with addressing year-end financial planning for our industry. The Accounting Update for Media Companies distance learning seminar will be held on Dec. 14 from 3:30 to 4:45 p.m. ET. Scheduled presenters include Stephen Schuetz, professional practice director, for Ernst & Young’s Southeast Region, along with E&Y partners Brian Pendley and Michael Fischer.
The webinar will review major developments from the Financial Accounting Standards Board (FASB), including revenue recognition and leases, along with SEC matters. FASB has been active this year, finalizing various projects in response to the economic downturn. The group has also been focused on several broad-based projects with the International Accounting Standards Board in their joint effort for convergence. In addition to providing a 2010 year-end corporate reporting update, our E&Y presenters will outline how these developments may affect 2011 accounting requirements. More information on the distance learning seminar may be found at by clicking here.
As Ralph Bender reminds us, a rollercoaster economy requires keeping our wits about us and maintaining a long-term, and positive, outlook. We are grateful to Ralph and our friends at E&Y for sharing their insights. It’s the support from volunteers like these that allows MFM to fulfill its mission of meeting the diverse needs of financial and business professionals in the media industry.
Mary M. Collins is president & CEO of the Media Financial Management Association and its BCCA subsidiary. Her column appears in TVNewsCheck every other week. You can read her earlier columns here.