Requiem for the Retail Investor?
Much has been written of late about how retail investors have been fleeing the stock market, shunning stocks for the safety of fixed income vehicles. Yesterday’s stock declines are no exception, as this USA Today article relates. Many pundits have cited the debacle associated with Facebook’s IPO as another reason for the individual’s growing distain for owning stocks and certainly has soured them on investing in IPOs as evidenced by the number of delays in new offerings.
Clearly, there are many things weighing on the minds of individual investors these days… the economy, job security, gas prices, college tuition bills, the impact of Europe’s debt crisis and so on. However, the flight of the individual investor is not a new story. It has been happening for quite some time now and it might be traced back to the bursting of the tech bubble 12 years ago. Of course, investor confidence was shaken with the “Flash Crash” a few years ago, the bursting of the housing bubble, as well as various insider trading scandals.
Certainly, Wall Street’s image isn’t helped with stories such as JPMorgan’s recent $2 billion trading loss furthering the notion that the financial markets are nothing more than gambling casinos (and, as we all know, in gambling the house always wins).
Does the retail investor matter anymore? Depending upon where you sit, retail investors do matter, particularly when it comes to investing in small cap stocks which many institutions are precluded from investing in. Their larger cap brethren don’t have such worries and tend to focus their IR efforts on the institutional crowd while paying minimal attention to the retail crowd or, as one senior IR officer once referred to as the “Condo Commandos.”
For the senior management of small cap companies having a well-orchestrated and consistent approach to building sponsorship among retail investors is critical as opposed to quick-fix promotionally-oriented schemes which may only work for the short term. One such solution comes in the form of PR Newswire’s Capital Market Visibility 365, a strategic and calendared marketing plan comprised of twelve integrated shareholder communication elements that simultaneously and directly engage Main Street, Wall Street and the financial media. Initially released in Fall 2011, the distribution strength of this 12-month communications program has been augmented via the integration of the de facto leader in financial-based social media, StockTwits.
“Investor relations officers are under constant pressure to cut expenses, but it is my opinion that many of the ‘savings ideas’ sold into investor relations departments’ negatively affect what a company continually needs most – proactive exposure to find new investors,” said Bradley H. Smith, Director of Marketing at PR Newswire. “Investor acquisition to advance shareholder value is the essential growth area for a public company.”
While Capital Market Visibility 365 presents an effective means for reaching individual investors, the lifeblood for small cap issues, an industrywide effort needs to be made to restore overall confidence in our nation’s capital markets. The system needs to be made fair and transparent to all. Investment information, such as the decisions by analysts to cut their estimates on Facebook’s growth prospects in advance of the offering, cannot be disseminated to a privileged few; it must be made available to all. Regulation needs to be modified to foster capital formation via the public markets (I wonder how many companies have either stayed private or sold out in lieu of an IPO given the regulatory environment?). Finally, more has to be done to educate investors about the fact the stock market is not a “get rich quick” scheme.
Our nation’s future – economically and, perhaps, technologically – hinges on having markets that are honest and transparent in providing opportunities for all participants.