Tagged: behavioral analytics

Two Pillars

I hit a nerve.

What sparked the tempest was my assertion last week that investor-relations professionals can’t be just storytellers when over 80% of trading is not Active investment.  (For you investors, it’s why stock-picking is performance-challenged.)

It’s not that respondents raged against the machines of the markets, or at me. Folks just wondered what to do instead.

A good friend and respected veteran in communications prodded me.  “You need to be specific,” he said. “You do a good job explaining the market, but don’t fade to generalities at the finish.”

I’m paraphrasing. In my mind, I’m clear. Perhaps on paper I’ve been less so. I conceded that he must be correct. So as the new year begins with the prospect of blessings, here are two firm principles for IR:

Rule No. 1: Build a diverse palette of institutional relationships strategically, then consistently match product to consumer tactically.

The market at some point will treat your shares, which are a product, in a manner that departs from the story you tell to support them. Broaden the audience.

Investors, think about this from a stock-picking perspective. You can select companies with great fundamentals but if Asset Allocation models don’t like them, expect the stocks to lag.

And yes, it’s possible to know what kind of money moves into and out of which stocks or sectors. We do it every day. We’ll come to that with some real examples.

Now match product to consumer, which is good relationship-management. Make this tactic a simple weekly action. We lay out a plan for you. It turns on metrics.

Nordstrom doesn’t randomly call people when the new Eton shirts are in, or whatever. They know which customers buy those shirts because they measure and track behavioral data. IR should too, and can.

Say you’re a growth story. But your shares are falling. The data show it’s Fast Traders shorting your shares, not investors selling. You can only affect active money, but get specific. Call the kind that likes Eton shirts. Deep-value high-turn hedge funds.

Every IR team should build (strategy) three or four such relationships. Tactically follow up only when your product matches. Help them achieve their investment objectives. They’ll help your shares recover so you’re a growth stock matching story.

Rule No. 2:  Measure the kind of money setting price, and make it part of management’s thinking (which takes persistence).

We’ve made it simple with six key metrics. The stock market is not a single monetary demographic, and it’s not long-term. Facts. Not threats to IR.

Copernicus said the earth was orbiting the sun, not the other way around. People wanted to go on doing what they always had.  Help your management team adapt to the real world. Yes, they’ll resist. Don’t let them revert to incorrect practices.

Example: A health care company has for the last five of seven weeks had Fast Trading as the leading price-setter, and short volume is consistently 65%.  Price reverts repeatedly.

The IR professional should tell management so executives won’t waste money on trying to reach more investors or blame IR for communicating ineffectually.

The data say investors are not responsible. Sure, the team might pick relationships to call that buy Eton shirts – aggressive, able to take risks in trading ranges.  But high short volume signals investors prefer renting shares out to investing more money in them.

The vital action item here is to set realistic expectations for management – perhaps flat tell them that the story and strategy need adjustment if investors are to engage again.  That’s powerful. And cost-effective.

A big client did a massive deal. For months the data showed investors hated it. No matter what they said with their lips, their money was not setting prices. The team tracked data and tweaked message and finally behavior changed. The deal closed. Powerful data.

Another client tracked investor-engagement for a year through a short attack and industry disfavor but ended with Superb investor-engagement using our measure called Gamma.  Awesome success metric.

Another had become a momentum growth stock without a momentum growth story, thanks to industry expectations. Data showed the dilemma ahead of a call that would likely recalibrate expectations. It showed big downside risk. But the transition out by growth money and the point where value investors set price were measurable, helping the IR team consistently inform management despite a painful reset to price.

The most important effort in any management discipline is understanding how the ecosystem functions. It’s impossible to make good decisions by guessing.  IR is a product manager.

There are two pillars to great IR in the 21st century. Build and manage diverse institutional relationships, matching product to consumer. Measure the data, understand the behavior setting price, and communicate it to management relentlessly.

You can’t run a truly 21st century IR program without knowing what kind of money is setting your price.  And why would you?  I didn’t say you can’t run a program. But it’s that vital, essential.

You can know what sets price. You can see how money changes over time.  You can use it to run your IR program efficiently and proactively (it’s our plan to bring behavioral analytics to investors in 2017 too). And you can look cool and feel less stressed.

That’s a darned good 2017 strategy, resting on big pillars.