Understanding Your Stock Price
By Steven Rubis
Speaker: Dennis Alvarez, Senior Director of Capital Markets, Nasdaq
KEY TAKEAWAYS
- The most commonly asked question of an investor relations officer (IRO) is likely, “Why is our stock down today?” The IRO oftentimes then embarks upon a chase of calling and emailing investors and analysts, scrambling to determine a satisfactory answer – and is left unsatisfied with the results of what amounted to a wild goose chase. Nasdaq speaker Dennis Alvarez provided a blueprint for IROs to undertake a more efficient and rewarding process.
- Breaking down the question into two parts, the “who” and the “why,” allows the IRO to embark upon a more refined fact-finding mission to understand the volatility of your shares. Sometimes the “why” is more important than the “who,” and vice versa.
- Knowing “who” starts with 13F filings and understanding how eight types of investors may impact your stock based on your company’s market cap. Micro-small cap stocks are driven by retail, proprietary trading firms and some hedge funds. Mid-cap stocks are driven by ETFs and large hedge funds. Large-mega cap stocks are driven by the largest active institutional long-only investors, as well as high net worth (HNW) broker asset allocation models. Knowing the right “who” better informs the IRO’s search to understand “why.”
- Answering the “why” question can be harder for IROs, as the information required to answer the question comes from external sources. Not only does the IRO need to undertake the traditional communication measures of calling and emailing investors, analysts and such, but the IRO needs to understand the stock’s actual trading. Is the issue specific to my stock, or across the industry? Is there a catalyst, or is it firm-specific or macro-specific? Is this trading “noise” or material to the stock? Sometimes, the IRO needs to connect with those actively trading the stock to get the best color on why the stock price and volatility are moving up or down.
- Important, but often overlooked, relationships require the IRO to get to know traders at the sell-side firms covering your company. Having these relationships will keep you more informed and knowledgeable. These traders can provide real-time and deeper color on what is actually happening in your stock.
- When the “who” and “why” become extremely complex, IROs can always turn to third parties, such as Nasdaq, for more robust surveillance work.
- For additional information, see the presentation.
Presentation: Understanding Your Stock Price