The Rise of the Retail Investor
Historically, retail investors – individuals who trade on their own rather than relying on professional investment advisors – were often overlooked by mid to large-sized public companies. The perception was that engaging effectively with retail investors required significant effort, was primarily reactionary, and offered limited cost-benefit relative to institutional investors. Today, however, retail investors are highly coveted. They can be essential for public companies seeking liquidity, market support, and broad interest in their story. Leveraging technology and harnessing community impact, retail investors have shown they can disrupt markets and influence corporate behaviors traditionally dominated by institutions or other significant shareholders.
Advancements in technology have removed financial literacy and cost barriers that had traditionally deterred the average person from managing their own investments. A growing number of individuals are now actively engaging with their investments on a daily basis. The emergence of commission-free trading has made it even easier for individuals to trade stocks, ETFs, and other financial products from their personal devices. These tools have helped to level the playing field, allowing retail investors to make informed investment decisions.
The rise of the retail investor is reshaping the financial landscape, creating new opportunities and risks for public companies.
How to Best Engage A Retail Audience
Engaging with retail investors through two-way communication platforms like social media, investor relations websites, and virtual meetings has become a viable strategy. These methods are cost-effective compared to traditional communication initiatives and allow companies to keep investors informed, address their questions, and gather valuable feedback. Open dialogue fosters trust and shows investors they are valued. Well-informed investors are less likely to spread rumors or misinformation and more likely to become brand champions. Additionally, understanding investor perspectives helps companies to refine their strategies, aligning them more closely with investor interests. When done well, this engagement can enhance the company’s image and benefit its stakeholders.
Two Sides to the Coin
One extreme example of the risks involved in engaging retail investors through social media is Elon Musk’s 2018 tweet about taking Tesla private at $420 per share with “funding secured”. This tweet caused significant market confusion, prompting an SEC investigation. The SEC deemed Musk’s statement to be misleading, resulting in a $20 million fine for both Musk and Tesla, and Musk stepping down as chairman for a period. This incident underscores the importance of ensuring the accuracy and completeness of public communications, regardless of the platform.
Strength in Numbers
Retail investors have demonstrated their collective strength in recent events. The GameStop phenomenon in early 2021 is a notable example. Organized efforts by retail investors on social media led to dramatic price swings and short squeezes, catching hedge funds off guard and resulting in significant losses for those shorting the stock. This event highlighted the ability of retail investors to significantly impact markets when acting collectively.
Amplified Voices
Although retail investors would typically hold relatively smaller positions compared to institutional investors, retail investors can collectively wield significant influence, which has been known to move stock prices, sway corporate policies, and even influence board compositions.
With the rise of social media influencers in investing and personal finance, one of the most notable aspects of the retail investor evolution is how smaller investors can become big voices –either for, or working against, companies. Two-way communication platforms like social media create both opportunities and potential challenges for companies when engaging with retail shareholders.
Harnessing the Power of a Retail Audience
Armed with technology and community power, retail investors are making waves, influencing markets, and even challenging the dominance of institutional players in certain instances. But with great power comes great responsibility—companies must engage these investors effectively, balancing engagement with transparency and trust while always be careful to avoid selective disclosure.
Turning a retail audience into a company’s biggest advocate takes time, effort and well-thought out strategy. From crafting corporate communications that are tailored to a generalist audience, to managing a company’s social media presence and advising on shareholder engagement, the team at 5Q is here to support our partner-clients. Our goal is to ensure your message resonates, builds trust, and ultimately leverages retail investors into a unified force that can help support your story. To learn more, reach out to the 5Q team today at info@5qir.com.
