Inside the Mind of the Investor: How Communicating With Wall Street Often Defies Traditional PR Instincts

By Michael Fox

As professional corporate communicators, our expertise is grounded in decades of observation and experience. Out of that experience comes a powerful intuition about how to present information that advances business goals and objectives. Like Luke Skywalker maneuvering his X-Wing fighter with eyes closed, we have an innate sense for when to zig, when to zag and when to pull the trigger. Much of this second sense emanates from a deep understanding of the audiences with which we communicate – consumers, business partners, employees and policymakers among others – and the channels that influence them, like the media.

But some of what applies as conventional wisdom in corporate communications may actually not always hit the target with one of the most critical stakeholder groups for many companies – the investment community.

The investment community: an elusive group

The investment “community” – comprised of an incredibly broad and diverse spectrum of institutional and individual investors, analysts, bankers, shareholder advisors and even the financial media – is a unique and, in many ways, elusive group that defies singular characterization. But its members possess many common traits and characteristics, some of which help illustrate why communicators often need to question, or even defy, the gravitational pull of certain traditional PR instincts. It may also help explain the disconnect that can sometimes occur between corporate communications and investor relations professionals when it comes to communication and messaging strategy.

Professional investors are the central players in this group. And understanding them – and those who influence them, like sell-side analysts, proxy advisors, the financial media and more – is critical to crafting effective corporate communications. And while the CFO or investor relations function may have primary responsibility for these audiences, all aspects of corporate communications ultimately impact investor perception.

Let’s go inside the mind of the investor to better understand how they think and why some traditional PR approaches may not always apply to this stakeholder group.

  • Investors are trained skeptics. Their job is to poke holes in every thesis and ask tough questions to pressure-test every story. They are dispassionate, economic animals and don’t respond to emotional appeals. They operate in facts – not hopes, promises or beliefs – and they measure, track and calculate everything.
  • While they live in the present, they are always looking to the future and assessing how what happens today impacts what will happen a year or more from now. And it is not just about what happened, but how it happened. Investors are fundamentally in the business of assessing risk, so while meeting expectations is nice, missing expectations can be fatal.
  • Investors have better memories than elephants. They expect consistency and do not respond well to unexpected changes or deviations from prior commitments or established metrics. And if they get burned, they will hold a grudge for a very long time.
  • And while investors demand transparency, they do not necessarily play by the same rules. Investors rarely show their cards and or reveal their motives. And while we assume they are all very nice people, in the context of your day job, it is not wise to engage with them as you would a friend.
  • Finally, Wall Street is not monolithic: institutional vs. retail; large funds vs. small funds; growth investors vs. value investors; mutual funds vs. hedge funds; active managers vs. index funds; long-only vs. short sellers; activist investors, event-driven funds and more! And with each variation, there are different interests and priorities and thus very different filters through which each will interpret company communication.

Some traditional communications approaches may fail to resonate

Here are several illustrations of how traditional PR instincts may miss the mark with investors and how to adapt them accordingly.

1. The impulse to “sell”

Communicators are hard-wired to advocate, persuade, promote and tangibly influence outcomes through our work.

Investors are averse to promotional commentary and can sniff it out from a distance. The investment story needs to be effectively packaged and conveyed over time, but investors want to reach their own conclusions and ultimately, they are sold on actions, metrics, KPIs and results. Worse than being ineffective, being overly promotional can undermine credibility with investors.

2. The allure of grand ambitions and the inclination to set high expectations

Renowned management guru, Jim Collins, espoused the motivational power of “Big Hairy Audacious Goals” (BHADs) to inspire organizations and teams to go beyond preconceived limits and achieve great things. Ambitions goals and high expectations can help attract and motivate employees, garner media attention and industry recognition, appeal to policymakers and others.

Professional investors are the ultimate curmudgeons. They want, or maybe need, their expectations to be properly managed. The mantra of “under-promise/over-deliver” is easily and often evoked, but much more difficult to apply in a consistent and disciplined way. On Wall Street, it is worth its weight in gold.

As mundane as it may seem, investors prefer slow-and-steady, consistent execution against measurable and achievable goals over time. Remember, as impressive as it is to do something that has never been done before, the mere fact that it has never been done before means it might not be doable! Investors are allergic to risk. And risk compresses your earnings multiple.

Although counterintuitive, lowering financial guidance (when supported by company forecasts) can actually be a catalyst for stock price improvement, as it mitigates the risk of a potential earnings miss that underpins a short-sale thesis.

3. The temptation to accentuate the positive (and downplay the negative)

Even if we don’t over-sell or over-promise, the natural tendency of communicators is to find the silver lining in every dark cloud. We highlight the upside and err on the side of optimism, conveying that we can safely thread the needle or hit the high end of our potential every time.

Wall Street is in the business of risk assessment. Understanding the downside potential of an investment at all times is even more important than gauging the upside. Being very matter-of-fact and forthcoming regarding risk profile is critical to success and maintaining long-term credibility.

4. The instinct to avoid pain and circle the wagons around bad news

Human nature is fight or flight – when bad things happen, we want to run and hide: maybe it will go away; perhaps we can deflect responsibility or blame someone else; maybe they are “events outside our control”; and, talking about it will only make it worse! Corporate communicators recognize this in the context of crisis communications and are typically the most vocal advocate inside the room to “own up to our mistakes” and “take our medicine.”

The same applies on Wall Street. Denying or sugar coating a setback does not avoid the pain – it simply delays it and makes it worse in the end. Investors detest finger pointing and lack of accountability. They can accept setbacks, but only if the team in charge steps up, owns it and explains what they are doing to fix it and prevent it from occurring again. They respect management teams who are equally visible in good times and bad. In fact, if they have long-term confidence in a company, they may view a short-term setback as a buying opportunity.

5. The affection for detail and complexity

Complexity can be comforting. It implies we have something unique, compelling and hard for others to imitate or compete with. Explaining it in excruciating detail only reinforces that point.

Complexity equals risk. Wall Street needs a KISS – so keep it simple, stupid. That does not mean bland. In fact, it is much harder to articulate a concise strategy and pinpoint the aspects of its competitive advantage and the key drivers of its success than it is to enumerate every possible relevant factor. But that is what Wall Street respects. Identify what matters and strip out the clutter.

6. The habit of over-explaining

As communicators, we are often tempted to address every possible angle to every question. Like Demi Moore in “A Few Good Men,” we want to “strenuously object” (or at least respond) every time our messages appear to not be resonating.

With investors, less is more. Apply the discipline to refine your messaging, anticipate scrutiny and effectively preempt it from the outset. Stick to it and repeat it consistently, no matter how dull or intellectually unsatisfying it may seem. Don’t get tempted into nuance, additional color or incremental disclosures where it is not required or helpful.

7. The urge to declare victory

There is nothing wrong with celebrating success! Even an occasional victory lap is warranted after achieving a major milestone. Investors get that!

But you can’t rest on your laurels for long. On Wall Street, positive developments do not exist in a vacuum. Each accomplishment simply raises the bar of future expectations. As the saying goes: “It’s ok to look backwards, just don’t get caught staring.”

Conclusion

While Wall Street may live by the spreadsheet, how a company tells its story is fundamentally integral to its perception among investors, and numerous studies over time show a direct and material connection between investor perception and stock performance.

The key to effective financial and investor communication lies in a deep and first-hand understanding of how these stakeholders think, what motivates them and how best to meet their needs. As we have seen, doing so requires corporate communicators to resist some of their instinctive tendencies and execute communication through an investor’s lens.

An abbreviated version of this article first appeared in PRWeek.