How to Communicate with Retail Investors

In the past, retail investors were not looked particularly favourably at by companies. Despite a relatively large share of equity ownership, strong market power and positive contribution to market liquidity, their decentralised nature made it difficult for companies to manage expectations and communicate with them. In addition, as they typically buy and sell shares more on news and sentiment rather than fundamental valuation, it means that they play a role in the determination of a company’s risk premium or discount. In the aftermath of the global financial crisis of 2008, and a higher distrust of the financial systems followed by lower interest rates, more retail investors have managed their own money. Combined with the surge of usage of social media, this led to a more robust investment culture among retail investors and, we believe, has become more sophisticated as an investment category. We explore social media and the way that retail investors can share news, valuation assumptions and investment perspectives more efficiently, leading to the participants’ ability to piece together information, and this way attempt to identify information advantages. This may be compared with the traditional relationship between institutional investors, equity analysts and brokers.