Small-cap and microcap companies often need to pay more attention to retail shareholders to make sure they understand the business and to avoid unexpected stock volatility.
GameStop and AMC Entertainment’s surprising 2021 rallies demonstrated the power of the retail investor. Individual investors may not own many shares; but when they act in unison, the results can be powerful.
Small-cap and microcap companies often need to pay more attention to retail shareholders to make sure they understand the business and to avoid unexpected stock volatility, which is becoming more common with changing investor demographics and behavior. Approximately 25% of those users of the financial website MagnifyMoney who are between 18 and 49, for example, look to TikTok for financial advice, according to the website.
To stay on top of these trends, investor-relations specialists for Riot Blockchain, a bitcoin mining company that is 40% owned by retail shareholders, spend several hours a week speaking with or emailing its retail investors.
Cinedigm, a microcap specialized in digital entertainment, signed an agreement in 2020 making its content available on 300 million smart TVs. When the company announced the deal on June 4, 2020, its stock recorded a 177% gain thanks to small investors who communicate via Reddit’s social media platform. Today, small investors own 170 million shares out of approximately 175 million outstanding shares. In response, Cinedigm adjusted its strategy and interacts more frequently with individual investors while following online discussions regarding the company to forestall any toxic rumors.
Retail shareholders, unlike high-profile institutional investors, are more numerous and not easily identified. One tool companies can use to identify their retail investors is the nonobjecting beneficial owner list, whose members have given permission to their financial intermediaries to provide their contact information to the companies in which they hold shares.
Drug-delivery platform provider Lexaria knows the names of the 9,773 shareholders who own 4.39 million shares of the company’s 5.38 million outstanding shares. To avoid “manic trading,” the microcap keeps in touch and sends its retail investors the annual letter from its CEO.
Retail investors are now getting the same high-touch treatment that institutional investors typically receive.