Taking the Mystery Out of Investor Behavior

Your company knows its investors pretty well, right? But do you know how they'll react to any particular strategic decision your company might make? Probably not. The consequences of not knowing can derail your strategy, leading you to miss out, for example, on acquisition opportunities. Authors Coyne and Witter claim that in most companies, the decisions of fewer than 100 investors typically account for about 70% of the changes in a company's share price. They also claim that a new approach to investor relations, drawing on the one used to manage customer relations, can help companies paint a more complete picture of their investors' behaviors and motivations. Investor-based finance first has you identify four groups of actual and potential key investors: large shareholders that suddenly become active, past shareholders that seem to be buying back in, smaller shareholders you think are poised to increase their holdings, and potential shareholders that own shares in comparable companies but not yours. By analyzing the patterns in the buying and selling behaviors of investors in those groups, you can ascertain which investors have the power to move your share price. Once you've determined who your key investors are, compare their horizon of analysis (long, medium, or short term) and the dominant content they analyze (information about organizational structure, strategy, or financials). In doing so, you'll come to understand what's most important to those investors, and you'll be able to predict how they'll likely react to different kinds of news and thus buy or sell shares in your company.

• Shareholder relations
• Mergers and acquisitions
• Fixed income securities