The value of investor communications can be difficult to determine. Some argue that it's a waste of management time and has no effect on a company's share price. Others have unrealistic expectations, assuming that your investor relations people can talk up your share price and, if they're really good, can tell you why your share price went down by 1.2 percent yesterday.
We fall somewhere in between. It's virtually impossible to interpret short-term price movements with any useful insights. And even if you could talk up your share price beyond its intrinsic value, you probably shouldn’t. On the other hand, good investor communications can ensure that your share price doesn't get out of line with its intrinsic value, can build a base of loyal investors, and can ensure that executives don't make poor strategic decisions based on misunderstanding what investors are saying to them.
Often overlooked, the last point about listening to investors is a key reason we became interested in investor communications. We observed that companies do pay attention to investors and sometimes base important strategic decisions on what they believe investors want the company to do. Too often, however, executives don't know how to interpret what they are hearing from investors, often because they're listening to the wrong investors.
Good investor communications is as much about executives listening to the right investors as it is about telling investors about the company. It's ...