Investors are still reeling from the string of failures in the regulatory regime and financial markets over the past decade. We have lost trust in government regulators, corporations and our financial advisers. This is a key trend and presents an opportunity for investor relations officers (IROs) to improve how investors view their company.
A direct result of the loss of trust is that a growing percentage of us are moving away from passive investing to self directed investing. Self directed investors want respect, equal access to information and transparency from companies where we invest our hard earned money.
Can You Blame Us?
We’ve seen corporate scandals at Enron and WorldCom, the collapse of industry giants like Lehman Brothers & Bear Stearns, the failure of diversification and rebalancing to protect our nest eggs, the failure of buy and hold over the past decade, record portfolio losses and the Bernie Madoff scandal. Discussions in Washington D.C. about holding wayward companies accountable to the government are met with cynicism. The loss of trust by investors in government, corporations and financial advisers has spurred an exodus of people from traditional brokers to online brokers. More of us are making the jump from passive investors to self directed. We trust ourselves when it comes to managing our money and no one else.
Who Are Self Directed Investors?
Self directed investors rely on our own research and contacts to get the latest information on companies. We go beyond company earnings reports and websites. We call IROs, CFOs and even CEOs and seek out anyone who can assist us in getting a comprehensive understanding of a company’s financial position, strategies and outlook. Many of us are working or retired professionals (physicians, lawyers, engineers) turned investor. Some of us are retired CFOs and CEOs, who know plenty about your industry and your company.
Self directed investors have different resources, financial goals, objectives and strategies. Some have low six figure accounts, some seven figure—and some even have eight figure accounts. Some are dividend hounds. Others are looking for the proverbial “ten-bagger.” Some use swing and position trading techniques. Many adopt a combination of strategies. As a group, we share the goal of reaching financial success on our own terms. We are confident in our abilities—comfortable using the Internet and online brokers.
What Do We Want?
So what exactly do self directed investors want from IROs and the companies they represent? These six things:
1. Obey the law and live within the spirit of Reg FD. That means providing equal access to information that analysts and fund managers routinely receive on key material questions. Analysts and fund managers enjoy plant tours and access to nuanced information through personal interactions with senior management. Offer something similar that reaches a wider audience such as videos of plant tours, online calculators to help investors play “what if” scenarios with things like book value, EBITDA, enterprise value, return on capital, return on investment, etc.
2. Call us back and respond to our emails. Treat us with respect. We are owners of the company. In the case of smaller companies, we may be large shareholders in regular communication with other large shareholders. We share what we learn with one another.
3. Provide regular news updates—good and bad—on the progress of significant projects. There is no excuse for going several months without a news update on ongoing projects.
4. Present all material information in earnings releases, not just selected information. We don’t think you are complying with Reg FD if you announce material information on a conference call and not in a press release.
5. Update your website in a timely fashion and highlight material information above the fold on your home page within an hour of significant developments. Any governmental or legal inquiry or adverse action should be highlighted on the web page immediately.
6. If your company pays a dividend, provide online guidance for regular ex-dividend dates. If you don’t know, a range of dates is sufficient. After announced, provide the amount of the dividend. Provide a historical table of past dividends and pay out rates going back at least five years.
How Can We Help IROs?
In a world of emerging social media, active self directed investors are increasingly influencing the market perception of your company. We seek out and talk to other self directed investors and post our impressions on blogs, Twitter and password protected social media sites. We have no hesitation in vouching for your company if we feel we’ve been treated fairly and honestly by IROs and company officers. Self directed investors can also provide a loyal shareholder base as your company earns a reputation for equal access to information and transparency.
In short, self directed investors can be real assets for expanding your company’s investor base—a win-win proposition for self directed investors and IROs.
SDI Glossary:
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"EBITDA" DefinitionThis Article's Word Cloud:
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