How do I attract more investors?
It’s the key question from investor-relations people, the liaison to Wall Street for public companies. The answer, though, isn’t what you think.
And I have to share. Come in closer, I need to keep my voice down.
I am cracking up over these ex-sellsiders at the IR profession’s online community, who are now investor-relations people, asking how to attract more sellside coverage.
Well, didn’t you used to do that job? Why are you asking other IR people how to get what you gave?
Anyway, back to my normal voice, for you investors and traders wondering what the hell I’m talking about, let me explain. There’s the buyside. That’s investors who buy stocks. Retail investors, you’re generally excluded because you’re a wild and fragmented audience.
(Also, we IR people have a professional association and an online community where we discuss stuff. That’s what I’m talking about, for you folks in other professions.)
The IR job revolves around the buyside and the sellside. Investors. And stock-research analysts at firms ranging from Goldman Sachs to JMP Securities who cover stocks – write research and make buy/sell recommendations.
The sellside created the stock market. The Nasdaq was the National Association of Securities Dealers – brokers – who devised an automated quotation system. NASD-AQ. Nasdaq.
And 24 brokers agreed in 1792 to give each other preference on buy and sell orders. That agreement laid the foundation for the NYSE.
Today, the buyside does its own research. Hedge funds like Millennium and Point72 buy every conceivable form of data from social-network sentiment to satellite images of parking lots at factories and shipments at ports, and God only knows what else.
They know more about you, public companies, than you do.
And way more than sellside analysts. The sellside is so yesterday (but Top Gun: Maverick, a reprise from 36 years ago when I was in college, is very much today, very awesome. We saw it, loved it.).
Sure, stocks move on upgrades and downgrades, but that’s mostly machines doing latency arbitrage – trading at different prices in different places but way faster than you can blink.
For the sellside, the result has been a great rout, a diaspora, a scattering. Demand for their views has collapsed, even though you see analysts all day on CNBC.
So they want IR jobs. As I’ve said before, when I started in the profession in the 1990s, we wanted to be Mary Meeker and Henry Blodget, making the big bucks. Internet analysts.
Now the Meekers and Blodgets want to be us. Well, Henry Blodget launched Business Insider, reinventing himself. Mary Meeker is a venture capitalist. The point is, the sellside is a dead end.
Tim, you haven’t answered the question.
I know it. I’m keeping you waiting.
I was providing an overview of ModernIR Market Structure Analytics to a new investor-relations guy.
He said, “How do these analytics help me attract more investors?”
I said, “You can’t. Not the way you think.”
I said, “The trouble is, unless or until someone – say, you – shows the Board and the executive team what the money is doing today, they will expect you to attract more investors. But Active money is on the same growth trajectory as payphones.”
Now, you CAN attract investors. But you do that with your CHARACTERISTICS, not your story. You do it principally with capital-allocation.
Tim, I don’t get it. I just go talk to investors, and they buy our stock, and our price goes up.
Would that it were!
See the image here? In 1995, more than 80% of market volume traced to stock-picking. And over 90% of institutional assets were actively managed. Easy to tell the story.
Now, Active assets are nearing 40%, and falling. One category dominates: Passive Large Cap Blend, approaching 40% of assets. Trading volume is 90% something besides story.
Public companies can’t tell the corporate story to a shrinking audience and get a higher stock price. They CAN determine how to get in front of the money – which is Passive Large Cap Blend.
If your market cap is under $5 billion, the probability you can become a large cap stock is about 1%. Every investor-relations officer should tell that to every c-suite, every boardroom.
It’s not to discourage you, but to get you focused on what matters. Your story, public companies, doesn’t determine your value. Your characteristics do.
If 40% of the money is Passive Large Cap Blend, you have at least a 40% chance of being in front of it by achieving those CHARACTERISTICS. That’s way better than 1%. Go big, or go home.
You want market cap? Go where the money is, by becoming what it wants. We always know where it’s going. If you want to more fully understand what I’m saying here, hit reply (or ask for a Demo through the ModernIR website at upper right).