Good investors are hard to find

Many company managements believe that making to the public markets will be enough to ensure that investors will discover, study and appreciate their outstanding investment merits and become long term investors – all they have to do is execute and get the word out.

Getting a new investment in an institutional portfolio is a huge effort that can take easy takes months or even years. Here are a few reasons why that is so:

Having said all that investors are still looking for good ideas and outstanding investments. Even though they have elaborate defense mechanisms against noise and unhelpful information, they are open minded if you can find a way to capture their interest and then present them with the right information in the way they are accustomed to seeing it.

Why is it so hard? Here are a few reasons:

  • The more worthwhile an investor is the greater lengths they have gone to in order to insulate themselves from the hundreds of calls, emails, messages and other distractions they have in managing their portfolio. Many of the best ones avoid all the “news” and do their own work.
  • Monitoring and managing their existing portfolio which may contain hundreds of positions is a full time job. Add to that servicing existing clients and marketing to new ones and they are booked pretty solid, even if they don’t make a single new investment.
  • Often they are focused on a theme that your company may not fall into. It’s not unusual for a fund to spend a few weeks looking at a specific space like wireless networking, information security or business analytics. During this time they tend to pay attention to little outside the area and their existing portfolio. However if you fit into an area they are actively working in it’s a golden opportunity and you will be welcomed.
  • There is a process. Although there are funds that have a single decision maker most have a process and an investment committee. That means quite a bit of work and preparation. So it has to be worth the effort. Your story has to be compelling, long-term and be backed by strong management and a record of execution. “Seeming like a good idea” won’t be enough.

Having said all this if your fundamentals are improving you will be discovered and ultimately find good long-term investors. Besides patience there are a few things to consider:

  • When they look for you – be easy to find. This is not just an IR area, it’s a research one as well. For our part we use partners to distribute our company research and positioning across all major institutional channels. When an institutional investor does a search on your industry or related companies, research on your company should come up.
  • Don’t be promotional. It’s a fine line. You need to be visible and communicate but not go over the line. If investors, particularly institutions, see your PR/IR programs as an attempt to “paint the tape” they will take it to mean that management is focused on the short-term and trying to attract traders and trading volume. Be like IBM.
  • Work on developing relationships with the best institutions given the chance. A monthly call to a portfolio manager is a wise investment if they have expressed an interest. They love to get industry perspective and updates on what you have observed not just in your own business but in general. It also makes it much easier to meet again when you are both at a conference or in town.
  • Conferences are worth presenting in but go to the best ones you can get invited to. It’s better to have a small part on a panel at top event than your own presentation at a bucket shop investor conference full of service providers and podiatrists.
  • Your investor presentation is critical. Make sure it is as good as it can be and have the most recent version easily accessible on your website. Don’t bury it or force people to listen to a webcast without the slides. Put it on slideshare, ask us to post it on Bloomberg for you and make sure it’s out there. In terms of your own content this is the single most important thing to do right.

It’s a process and a journey rather than a destination – figure out how to have fun with it!

 

 

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