Image credit: Joseph Mallord William Turner, “Snow Storm — Steam-Boat off a Harbour’s Mouth,” 1842, Tate Britain
By Jason Zweig | Apr. 20, 2016 12:41 pm ET
Goldman Sachs Group’s earnings announcement on Tuesday called our attention to a word that is blowing through corporate earnings calls like a zephyr from buzzword hell: “headwinds.”
“The operating environment this quarter presented a broad range of challenges, resulting in headwinds across virtually every one of our businesses,” said Lloyd Blankfein, Goldman’s chief executive, on Tuesday.
Rick Goings, CEO of Tupperware Brands, is also on board the headwinds bandwagon. “We have continued to need to navigate through economic and political headwinds,” he said on Wednesday.
Klaus-Christian Kleinfeld, CEO of Alcoa, and the aluminum giant’s chief financial officer, William F. Oplinger, kicked off this earnings season on Apr. 11 by invoking “headwind” or “headwinds” nine times in their conference call, according to a transcript from FactSet Research Systems.
Over the past year, according to data from FactSet, the words “headwind” or “headwinds” were uttered in 2,083 conference calls for which transcripts are available for companies in the Wilshire 5000 index. Meanwhile, during the same period, conference calls mentioned “tailwind” or “tailwinds” just 858 times.
And “headwind” and “headwinds” are approaching gale force, while “tailwind” and “tailwinds” are tailing off. References to headwinds are up 16% from the previous 12-month period, while talk about tailwinds is down 2%.
Consider the remarks of Levi Strauss & Co. chief executive Chip Bergh this week: “It’s a really tough environment out there,” he said. “The dollar is still really strong, and traffic is still declining in retail. There are no tailwinds; we are going to have to fight for every dollar.”
Investors are used to hot air on conference calls from management, but why is so much of it seemingly blowing only in one direction now?
Thomas Gilovich, a psychology professor at Cornell University, says people use the metaphors of headwinds and tailwinds in a peculiar way.
Think of running or riding your bike outside. When a headwind is blowing, you feel it in your face and sense its physical drag, slowing you down and making you even more conscious of how much effort you must expend to keep moving forward. A tailwind, however, isn’t psychologically salient: Unless it’s blowing extremely hard, you may well forget it’s there at all.
Thus, viewing our own actions, we tend to perceive an arduous struggle against fierce headwinds; other people, however, may often seem to be coasting, borne along on the fair breeze of tailwinds.
“Because we have to overcome our obstacles, we’re going to be aware of those obstacles,” Prof. Gilovich said in a recent lecture. “The things that are giving us a boost, we don’t have to pay attention them nearly as much, and therefore we lose sight of them.”
As a result, he says, it is easy to lose track of how important good luck has been in contributing to our success — and to neglect calling any attention to the positive factors beyond our powers to control. Meanwhile, we scapegoat the negative factors we can’t control.
That prompts managers to take credit for overcoming headwinds when things go well, while blaming any bad results on those ill winds.
Of course, managers will almost never credit tailwinds for a company’s good fortune. Nor will they blame themselves for not having taken sufficient advantage of tailwinds if things turn out poorly instead.
So corporate managers are being human, all too human, when they harp on headwinds and downplay tailwinds. But investors should know better: The winds of credit and blame still blow in both directions, and always will.
Source: MoneyBeat blog, WSJ.com