The Importance of Understanding Your Retail Investor Base

The last decade has seen a boom in DIY and retail investors entering the market. With growing access to corporate records, online finance communities, and low or no commission investing apps, it’s easier than ever for individual investors to take a position in your stock. Indeed, recent events such as the COVID-19 Stock Market Crash and the Gamestop debacle have highlighted just how much retail investing is gaining traction. 

According to research from the World Economic Forum in 2022, retail investors own approximately over 50% of global AUM. Furthermore, over 53% of American families hold stocks according to the SEC. 

Retail investors have the power to move markets, and yet most corporations are not actively engaging with their retail investors. For many, part of the aversion to engaging retail investors has to do with access; while institutional investors are easier to identify and track positions, the lack of transparency in the retail market makes it difficult to track individual investors. Luckily, as modern trading has evolved so has the ability to access your retail investor data.

Read on to discover some advantages of engaging retail investors, how to access retail investor data, and how you can leverage that information to earn higher valuations.

Learn how you can uncover retail investors in your stock by clicking here.

What are Retail Investors

Retail investors, also known as individual investors or retail traders, are non-professional investors who purchase assets. Retail investors can purchase corporate bonds, stocks, securities, mutual funds, and exchange traded funds (ETFs). In most cases retail investors need to use an intermediary such as a brokerage firm, investment advisor, or an investment platform. 

Retail Investors vs Institutional Investors

While the capital used by retail and institutional investors is the same, there are a few key differences in the ways these groups invest.

Despite myths about having weak hands or having a “pump and dump” mentality, retail investors typically trade less often and take longer positions in your stock. This means they can bring a welcome stability when compared to professional investors, who can sometimes follow a herd mentality and trade more often.  This stability can have a positive impact on company valuations. 

The last thing to note about retail investors is that they don’t always have access to the same tools and privileges institutional investors have. Retail investors may lack access to financial reports, and are usually unable to snap up shares until institutional investors have had their fill. As a result, retail investors typically favour well known stocks. That doesn’t mean that smaller companies can’t attract individual investors. On the contrary, you can mitigate this by improving your public transparency for retail investors. 

While it may seem like targeting retail investors is like going after a small fish in a big pond, it’s important to note that your targeting strategy is more like going after the whole shoal of fish. You don’t have to be targeting the individual at the granular level, rather you can target retail investors as a collective. Retail investors make up a large segment of the stock market, with the latest data from the US Federal Reserve suggesting that retail assets comprise over 75% of the stock market.

Retail Investor Relations Strategies

Although the importance of retail investors is clear, the challenging part is earning, engaging, and retaining your retail shareholders. You don’t have to be a FAANG company to attract retail investors. These days there are more avenues than ever for retail investors to invest in your company. While the SEC is making strides to help retail investors make informed choices, the onus is on your company to make informational materials accessible to private investors. Some strategies you can use to nurture your retail shareholder base include tracking NOBOs, hosting retail investor events, and using a dedicated IR CRM. 

NOBO Lists

NOBOs, or Non-Objecting Beneficial Owners, are your shareholders who have agreed to share their contact and ownership information with issuers. While it may seem easier to interact exclusively with brokers and institutions, NOBOs represent an excellent opportunity to get in front of retail shareholders directly. Tracking the NOBO share movement is also a great way to gauge retail investor sentiment. 

Knowing which NOBOs have large positions in your company can help you understand your shareholder demographics, improve your shareholder relationships, and allow for the orderly selling of blocks of shares. After all, it’s easier to convince an existing shareholder to buy more  shares than it is to find new investors.

According to Mike McAllister, VP of Investor Relations at Sierra Metals:

"Simply put, without something in place like Irwin's NOBO Solution, you're missing a large part of your shareholder base. You don't even know that they're there - you're missing opportunities for people who are willing to buy or increase their positions to support your stock.”

‍Retail Investor Events

Once you’ve identified some of your retail shareholders, the next step is to engage them. While visiting all your retail investors during roadshows might be extreme, the proliferation of online webcasting solutions makes it easier than ever to get in front of retail investors no matter where in the world they live. Running a virtual roadshow can help you get in front of a wide audience of existing and potential retail investors. 

IR CRM

Additionally, having a proper IR CRM allows you to better keep track of institutional, retail, and NOBO investors. By keeping all your contacts organized in a dedicated IR CRM you can proactively send your retail investors pertinent information with a quick and easy mail merge. You can use this to keep your investors abreast of corporate governance changes, company catalysts, quarterly reports, and upcoming virtual events. This allows you to keep an open line of communication with your retail investors without having to track each one individually. 

Final Thoughts

Keeping track of your retail investor relations may seem overwhelming, but with the right tools it can be a powerful way to tap into an underserved shareholder base.