One of the few regrets I have about my career in investor relations is that I didn’t save the typewritten meeting and feedback notes I wrote for clients in the 1980s following one on one meetings with legendary investors including Peter Lynch, Mario Gabelli (going back when he was an auto analyst), and Julian Robertson. These memos were essential for my IRO clients for planning and analysis purposes, and also to educate their colleagues in senior management about the essence of IR itself. For most of the 1980s, money managers regularly included comments about how our clients could adjust their communications to better appeal to US investors. The meetings and the feedback started my IR education about what worked best for companies to achieve their capital markets and IR goals, and these lessons came from some of the greatest investors of our time.
When the 1990s came around and thousands of corporate access pre-cursors got into “IR,” a buy-side backlash occurred against the barrage of feedback calls (and then emails), and it became increasingly more difficult to gather. As awareness grew that the sell-side was using feedback for a variety of purposes other than helping the management under discussion to better communicate with them and the market, even more buy-side resistance developed. Then Taylor Rafferty conducted its own buy side communications campaign stating (in writing to individuals/institutions when necessary) that feedback we gathered would be held in confidence with the client on whose behalf we were calling. That helped us gather quality feedback, but it was tough going indeed in those days. For the record, we have always been legally and ethically “insiders” when it comes to anything to do with our clients, and this also is why we don’t get banned from one-on-one meetings.
Since the financial crisis, one of the benefits to our clients of declining Corporate Access resources has been Taylor Rafferty’s ability to gather more in-depth, thoughtful institutional feedback than at any time in our recent history. Today, the sell side does not have time to assiduously work the feedback calls – so the volume of feedback approaches targeting the buy-side is much lower. IROs have also realized that barraging institutional sales teams about getting feedback doesn’t improve the quality of the output (although I dare say it has definitely resulted in fabricated feedback). Our feedback work has also been made smoother by the fact that for over 30 years institutional investors have recognized the Taylor Rafferty name as meaning they will be asked relevant, thoughtful questions respecting their time; our team on the phones and composing the emails have been working with portfolio managers and analysts for decades. So the bottom line is our clients are getting the highest quality feedback reports since I sat at my IBM Correcting Selectric writing memos to clients 30 years ago.
The quality of the feedback we gather makes it more fun than ever for me to read and edit (yes, the definition of an “IR Nerd” includes “undue enjoyment reading institutional feedback reports”). What hasn’t changed, although it stands out more clearly, is how much of the feedback is qualitative, perceived market-sentiment based, citing the portfolio manager’s “feelings,” interpretations of management’s tone, body language and what the market “thinks” management – and the stock price -- is saying. The reason it stands out more clearly today than decades ago is in part because differences in accounting standards were much greater then, and working through how best to communicate the accounting differences and similar number-specific issues took up a much greater portion of US investors’ bandwidth when it came to non-US companies. Similarly, basic market and financial data available on-line today was virtually non-existent in terms of non-US companies. Today you get more quickly to the heart of the matter: whether or not to “Buy Management” of company “ABC.”
But besides touting the excellence of our team’s ability to gather, process and craft institutional feedback into actionable IR advice -- which I am always happy to do -- I am highlighting that the breadth and depth of feedback today presents the IRO with a game changing capability. The ability to organize and systematize the commentary into categories that transform qualitative information into a common sense “Behavioral IR” guidance allows management to better understand the psychology of their investors in ways that can be built into IR messaging. With enough high quality feedback, the IRO can explain the dominant reactions in consistent terminology that will better prepare their entire team to direct their efforts at specific goals for each investor interaction. There are clear patterns in qualitative feedback that provide opportunities to analyze investor commentary into categories that can inform next steps in IR messaging.
For example: “The top three investor comments in order of frequency: 1) potential profitable sales of ABC stock after its run up due to loss aversion, 2) reference point sensitivity to ABC having achieved a significant long term corporate goal and, 3) the illusion of cause that hitting this milestone is the reason for ABC’s current valuation.” Most IROs will recognize these as part of the “what’s next?” investor mindset. Refocusing investors in a “Behavioral IR” framework informs IR messaging that best addresses the fact-based and psychological roots of this state of market mind. It allows the IRO to apply the most effective tools to change their perspective to best align with your current investment thesis and IR narrative. If you are interested in learning more about this approach, email me. It is one of the several frontiers of IR remaining to be explored, and when you work through the process, you’ll wonder why no one has done it before.
And for those of you who made it this far, and recognize that Jimi Hendrix opened this blog because he is the immortal master of guitar feedback, the first five that email me will get a copy of “Jimi Blues,” one of my favorite live CDs.