Tagged: strategy

Blunderbuss

Do stores sell coats in the summer? 

No, they sell bathing suits. They match product to consumer.  Do you, investor-relations professionals?

I’ll tell you what I mean.  First, here’s a tease:  I recorded a panel yesterday with the Nasdaq’s Chris Anselmo and Kissell Research Group’s Dr. Robert Kissell on How New Trading Patterns Affect IR.

It airs at 4p ET June 22 during the 2021 NIRI Annual Virtual Conference.  Root around in the couch cushions of your IR budget and find some coins and join us.  We’ll be taking questions live around the panel.  Sling some heckling if you want!  It’s a great program.

Now, back to matching product to consumer.  The IR outreach strategy for maintaining relationships with investors often resembles a blunderbuss. Unless you went to elementary school when I did and saw pictures of pilgrims sporting guns with barrels shaped like flugelhorns, you probably don’t know what I’m talking about.

You threw some stuff in the barrel and loaded it with powder and ignited it and hoped some of what belched out went in the general direction you were pointing.

Illustration 165213327 © Dennis Cox | Dreamstime.com

If you don’t have anything better I guess it works. But the IR profession shouldn’t be blunderbussing wildly around.

I get it, Tim.  Be targeted in our outreach.

No, I mean sell your product to consumers who’ll buy it.  Your product is your stock.  Your story is a narrative that may or may not match your product.

Huh?

Stay with me.  I’ll explain.  This is vital.   

Think of it this way. REI is an outdoors store.  It’ll sell you cycling stuff and camping gear in the summer, and skiing gear and coats in the winter.  The data analytics they use are pretty simple: The season changes.

In the stock market, the seasons are relentlessly changing but the temperature doesn’t rise and fall in predictable quadrants to tell you if igloos or swimsuits are in. But the BEHAVIORAL DATA wax and wane like many small seasons.

The Russell 2000 value index is up 30% this year. The Russell 2000 growth index has risen just 3.8%.  Is value more appealing than growth?  No, as both Benzinga and the Wall Street Journal reported, GME and AMC rank 1-2 in the index.

The crafters of the indices didn’t suppose that movie theaters in the age of Covid or a business built on selling games that have moved online were growth businesses.

They’re not. But the products are. These are extreme cases but it happens all the time.

CVX, market cap $210 billion, is in both Value and Momentum State Street SPDR (S&P Depositary Receipts) Exchange Traded Funds. It’s got both characteristics AT DIFFERENT TIMES.

AAPL, in 299 ETFs, is used for focus value, dividend strategies, technology 3x bull leveraged exposure, high growth, luxury goods, risk-manager and climate-leadership investing, among a vast array of other reasons.

Look up your own stock and see what characteristics are prompting ETF ownership.  That’s data you can use.  Don’t know what to do? Ask us. We’ll help.

How can ETFs with diametrically opposed objectives use the same stocks? That’s something every investor-relations professional needs to know. ETFs control $6 trillion in the US alone. They’re not pooled investments and they don’t hold custodial accounts like mutual funds.

Should the IR profession understand what the money is doing in the stock market?

Set that aside for now. There’s an immediate lesson to help us stop behaving like blunderbusses.  Stocks constantly change. I think rather than targeting specific investors, you should build a big tent of folks you know.

And you should RECONNECT with them in highly specific, data-driven ways.  If you just call investors you know to follow up, you’re doing IR like a cave man. Stop doing that.

The deck is already stacked against investors focused on story.  They need all our help they can get! I’ve explained it many times.  Rules promote average prices and harm outliers.  Passives want average prices. Stock pickers want outliers.

If we want investors interested in our stories to succeed, use DATA to help them.

Like this. We met with a Financials component yesterday.  The data show a big surge in Passive money in patterns.  You won’t see it in settlement data.  It never leaves the custodian because it the same money moving from indexes to ETFs and back.

But ModernIR can see it in near realtime.

The IR department should be calling core GROWTH names, even though it’s a value story.  That wave of Passive money is going to lift the stock. Growth money buys appreciation. Value money buys opportunity.

You want to move from blunderbuss to data expert in modern markets?  Ask us.  You don’t have to be way behind like the Russell indices.  You can be way ahead, like a modern IRO.

Get rid of that blunderbuss, pilgrim.   

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.