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Communicating and connecting to retail investors

Published 03-OCT-2019 08:08 A.M.


3 minute read

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The below articles were written under our previous business model. We have kept these articles online here for your reference.

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In the following video, The Capital Network's Julia Maguire, Lelde Smits and Ky Chow present Communicating & Connecting To Retail Investors to highlight the process of educating retail investors about an investment proposition.

The second video in this series covers the three key stages of the Block Theory process, from Entering the consciousness to confidence building and finally crossing the confidence threshold.

You can find part one here:

Disclaimer: The information in this presentation has been sourced from Listcorp as a general guide only and cannot be relied upon as legal advice.

We all know retail investors are increasing in Australia, and are increasingly important to Australian companies. But how can we effectively ensure retail investors are informed?

Block theory has three stages: Stage 1: Entering the consciousness, Stage 2: Confidence building and Stage 3: Crossing the confidence threshold.

Let’s take a closer look at Stage 1: Entering the consciousness. Unlike the top-down process used by most fund managers to arrive at a group of companies for consideration, retail investors use a bottom-up process to arrive at a shortlist of companies to evaluate.

This process begins when a company enters the consciousness – or gets on the radar – of a retail investor. This generally happens in one of four ways: A personal introduction through a broker, family member or friend, media coverage, personal experience, or an idea.

After a company or investment proposition enters the consciousness in stage one, the retail investor begins building confidence by accumulating ‘blocks’ of information.

In stage two, confidence building, each block further increases the investor’s confidence and gradually builds towards their ‘confidence threshold’. This is the barrier, which, until breached, will prevent the investment decision.

Finally, we move to Stage 3: crossing the confidence threshold – and it’s worthwhile to remember here that time has a lot to do with it.

You don’t want to leave too much time between the first and second block, or too much time between the second and third. A lengthy cap in time increases the possible risk of retail investors forgetting or replacing information.

As a result, companies that communicate frequently and consistently, are more likely to benefit from a natural momentum than those that don’t.

Simply put, the more quickly a retail investor is able to understand the business of a company, the greater the likelihood they will want to learn more about it.

Information that is clear, simple and engaging will greatly enhance the likelihood that a company will progress through the process. When an investor has a desire to seek out more information that confirms existing beliefs they head to the ‘tipping point’ – the moment just before they are about to make an investment decision.

Keep in mind, the confidence threshold required for different companies may vary for the same investor. Larger companies are perceived as smaller risks, while smaller companies are perceived as greater risks. However, larger companies are also considered to have less growth potential when compared to emerging companies that are often considered be undiscovered opportunities – hidden gems.

As a smaller company seeking the support of retail investors, it’s important to use the fundamentals of Block Theory to frame a communications strategy to connect with retail investors.

A comprehensive strategy involves an end-to-end investor relations solution starting with a news flow plan, a calendar of share price catalysts, clear and coherent investor materials, share register analysis and targeting, distribution, traditional and digital media, as well as roadshows.

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

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