Investor Relations for investors, companies, and as a future career

See “Firms urged to maintain high communications profile” (page 2, business)

As you can see from the headlines, this article is about Investor Relations (IR). Investor Relations is how a corporation meets the information needs of investors after the corporation’s IPO. Three types of readers might be interested in this article: 1. investors, 2. companies, and 3. young people planning a future career. While you read the article ask yourself what useful information these three kinds of people can get from this article.

Companies

For companies, the important question is: “How does a newly listed company keep itself on investors’ radar after the excitement surrounding its IPO is over?”

Companies want investors to “understand and value their companies to the fullest,” because this will make it easier to raise money and grow in the future. New companies are required by law to provide extensive and accurate information for their IPO in a prospectus. An IPO prospectus is a "detailed overview of the company's finances, history, operations, products, risk factors, industry environment, and other information." After the IPO, the company doesn't have to provide the public as much information. Companies are afraid that if they give out too much information their competitors will exploit it. For example, a competitor might steal a business idea or an employee from the company.

Investors

Think about the problem from the investor's perspective. If an investor can’t learn about a company, they won’t feel comfortable investing money in the company. The market "is driven by an understanding of company fundamentals and sentiment, as well as by rumours and just plain noise.” Successful investors like Warren Buffett have focused on company fundamentals when they invest, but it is difficult to study the company fundamentals of small- and mid-cap stocks (SMC) (companies with lower market capitalization) because there isn't much research on these companies available.

Students

If you are a young person thinking about a career, this article could give you some ideas about where to begin looking. Investor Relations is a career specialization in developed western countries that will probably become more important in Thailand in the future. Even when you’re still in university, you can start studying successful companies and their histories by using your university library and reading the newspaper and business magazines regularly. Also try searching on Google for articles on “business history”.

Vocabulary (in article)

high profile – people notice what you do
a newly listed company – a company that has recently started to have its shares traded on a stock exchange
on investors’ radar – investors know that the company exists (just like the radar on a ship or airplane shows any nearby objects)
IPO – Initial Public Offering
company fundamentals – a company's financial results, its operations and the markets in which the company is competing, used to judge the stability and growth potential of that company
to cut through the noise – to separate meaningful information from meaningless noise
vital – necessary and very important
small - and mid-cap companies (SMC) – companies with less money invested in them
overlooked – not seen or noticed
market capitalization - the total value of a company's common stock shares (See Wikipedia)
a long-term perspective – a way of thinking about something that looks many years into the future
a spate of – a large number of things (usually unpleasant) that happen in a short time
overloaded – too much work
disclose information – make information public
exploit – use something (like information) to gain an advantage
noise – meaningless information
a speck – a very small mark or piece of something like a “speck of dust” or a “speck of blood”
a sound story – a reasonable and reliable story (when you read it, it sounds correct)

Vocabulary (in the discussion above)

to raise money – to get money for a project by borrowing or selling an equity interest
a prospectus – a document that gives details about a company, organization, or project
the investors' perspective – the way that an investor sees the situation or problem

More things to do

If you want to learn more about the role of noise in financial markets, I would suggest reading the book “Fooled by Randomness” by Nassim Nicholas Taleb. Dr. Taleb is a professor of statistics and probability at the University of Massachusetts at Amherst who also worked for a long time as a trader on Wall Street. His book shows how traders are often fooled by the noise of financial markets. Taleb’s homepage has a lot of free material worth reading.

Try choosing a company that is not too large and finding out everything you can about it. Look for its annual report, old newspaper and magazine articles, and even advertisements. You can also see if they actually achieved the plans that they made in the past.

Here's an Investopedia article that explains how Warren Buffett analyzes company fundamentals.

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Article

Firms urged to maintain high communications profile

PLOY CHITSOMBOON

How does a newly listed company keep itself on investors' radar after the excitement surrounding its IPO is over?

Analysts say it's an issue of concern not just for newly listed companies but for all existing ones as the market is driven by an understanding of company fundamentals and sentiment, as well as by rumours and just plain noise.

To cut through the noise, investor relations is a vital tool in communicating information about a company's performance and share movement, IR specialists said at a seminar held by the Stock Exchange of Thailand.

Companies that have sound relationships with the capital markets and the financial community are more likely to have share prices aligned with their underlying values, they said.

But small- and mid-cap companies (SMC), which are usually overlooked or misunderstood by investors, have low breadth and depth of coverage by securities analysts, even though many outperform the market in the long run.

Higher research coverage comes only when trading volume and market capitalisation reach higher levels.

``Small-caps really perform very well, but you need to be patient with these stocks. It needs much more of a long-term perspective compared to big caps,'' said Viet Hung Do, managing director of Tonson Capital.

He said the SET had demonstrated numerous examples of small-cap companies developing into mid- and large-cap ones over the past few years.

``Investors have made excellent returns on SMC stocks, better than most people realised. So in this case, the IR function plays a crucial role in building and strengthening all critical relationships, ensuring that the investors understand and value their companies to the fullest,'' Mr Do said.

But finding good SMC stocks for investment is not easy. If investors want to buy PTT or SCC, they can find good research on them. But you may struggle to find any analysis on SMCs.

``The problem here is there are a lot of SMC companies that have beautiful earnings but don't know how to communicate with their investors,'' Mr Do said.

The recent spate of initial public offerings (IPOs) has ignited the IR advisory business. He believes the quality of the industry has been gradually improving compared with the past.

``There's room for us to do our homework as almost 40 brokers will be very overloaded taking care of IPOs,'' he said.

IR specialists are encouraged that many companies today are more comfortable about disclosing information and do not fear that competitors could exploit it.

CEOs must know how to sell their products and know what their investors want, including doing a research about them, said Mr Do. ``You also have to be very creative in your IR communications and of course, have to have time to meet up with your investors, not trying to be too busy making money,'' Mr Do added.

Andrew Stotz, director at Citicorp Securities (Thailand), said the world was full of business noise and that Thailand was just a speck on the globe. But investors can be attracted to small companies that have a sound story and know how to express themselves well.

"The best message is that you'll never keep up with noise. The same is true with what happens in the market _ it gives you noise but what does it matter, if you know you story well,'' Mr Stotz said.

Discussing recent market sentiment, He said political uncertainty could be seen as a temporary noise but in every crisis, there always seems to be hidden opportunity. ``Everybody in the market is trying to predict the situation and what sort of outcome there might be. Anyway, uncertainty means risk in the market, but bear in mind that risk also means lower price,'' he added.

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