The new world of investing: implications for listed companies
The rise of retail investment platforms means investing is far more accessible now than it’s ever been. But what does it mean for listed companies and how they communicate with investors?
Globally, the number of people using the likes of Sharesies, Robinhood, eToro etc. is skyrocketing. More than 130 million people used a stock trading app in 2021, which was a 49% increase on the year prior. Credit Suisse found retail investment peaked at nearly a quarter of all activity on equity markets in Q1 2021.
These are considerable numbers, to the extent where listed companies now need to see non-traditional investing channels as a potential avenue for growth alongside the conventional investor.
The market looks differently to the way it used to, which requires a fresh approach in how you communicate to it. Your strategy and messaging needs to account for changing investor demographics and nuances that exist in this new environment.
Whether these kinds of platforms caused the movement or capitalised on it is a moot point, but they’ve captured a desire, particularly among young people, to invest and enabled it to happen. Key changes include:
- Previous barriers to entry have been removed, with investors able to start without five-figure deposits
- Investors have easier access to financial information, particularly through social media
- The investment landscape has gone from from broker-led trading to trading from home via apps
- Growing awareness of KiwiSaver and investment markets through Covid volatility
The implications for publicly traded companies are not insignificant.
Less experienced, educated investors behave differently to those who’ve been in the game longer. They may be more erratic or less considered - the FMA found 31% of investors jumped into an investment through fear of missing out, and 27% said they invested based on a recommendation without doing their own research.
Chapman Tripp partner Rachel Dunne recently discussed the potential destabilising implications of this impulsivity with NBR.
“You can't protect people from themselves…but ultimately, it does run the risk of undermining the integrity of the market.”
The type of people who are investing is changing: 40% of New Zealand investors are aged 25-34, and 60% are under 44. The way this demographic communicates is different to older generations, which is something listed companies need to be conscious of.
Social media is the elephant in the room in this regard.
Investors who use social media as an authority for financial advice clearly risk being misinformed. But while it may be tempting to jump to the conclusion that all young investors are swayed by what they see on Instagram, further FMA research suggests this isn’t happening.
"While the younger generation is consulting social media more [than other generations] there is still higher trust levels in what we would call 'traditional institutions', for lack of a better word," FMA manager of investor capability Tammy Peyper told Radio New Zealand.
The FMA found 43% of investors say they read annual reports or company disclosure information, and 24% say they read the small print on investment. These may be surprisingly high numbers, but it does also mean the majority are not doing these things.
One big question is how to communicate important and perhaps complex contextual information to a different type of investor. Failure to do this may feed back into misinformed decision making, but it may not always fit into a tidy, succinct social media post.
The motivation of your investors is a big factor to consider. 79% of New Zealand retail investors say their strategy is to buy and hold their investments. Younger investors saving for retirement can afford to ride out negative periods, and more than a third of retail investors view losses as a normal part of investing.
On the flipside, does that mean the remaining two thirds won’t tolerate any losses? Probably not, but they may not be as prepared to stomach extended periods in the red.
Ultimately, retail investment has mobilised a different type of investor. Their motivation isn’t fundamentally different to the past, but as a younger demographic, they do things differently.
As always, it’s important for listed companies to understand who their investors are; the more you know about them and the way they interact, the better.
Retail investors have been dismissed in the past as “dumb money”, but they’ve shown stickabilty and resilience, and have more than enough potential to influence the markets.
They’re not going away and companies that can engage and relate to them better will invariably have greater success.
This demands enhanced communications strategies that consider all channels and the nuanced messaging required to deliver to both new, and traditional investor needs.