IR in Focus | Season 3 | Ep. 5 - Retail Investors: Understanding Investment Patterns and Engagement Strategies

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Carmen Lilly

Hello and welcome to another episode of IR in Focus. I am your host, Carmen Lilly, and today I'm joined by Tom Bruni, cpa, to take a closer look at retail investment behavior and engagement strategies focused on this investing group. Thank you for joining us today, Tom.

Tom Bruni

Thanks so much for having me, Carmen.

Carmen Lilly  

Yeah, I'm looking forward to this discussion. Before we get started, I just wanted to do a quick introduction to our audience. So Tom is currently the editor in Chief and VP of Community at Stocktwits. He leads publishing efforts including the market Recap newsletter, the Daily Rip, and his work is regularly featured in the Wall Street Journal, Bloomberg, Reuters, Barron's, and many more media publications. So just quick opener here just to get our audience familiar with you and what you do. If you could give a quick background of Stocktwits, what is this product and why is it important?

 

Tom Bruni:

Yeah, perfect. Thank you so much for having us again and thank you for that kind intro. Stocktwits is the largest social media platform for retail investors and traders. So we've been around for 17ish years, since the mid 2000s. And over time we've developed into a larger media brand with different components. Video, podcasts, newsletters, news. And so our job is to really give retail investors and traders a core place to talk about markets in real time. And so my job as editor in chief is to go out and tell the story of the retail investor and what we're seeing in terms of trends and where their attention and money is being focused and try to tell that story and create content for them through our publishing efforts and other content arms to help them become better investors and have fun in the markets at the same time. 

 

Carmen Lilly 

Yeah. And on that point we know that retail investors, they do have a significant impact on market sentiment. So I was wondering if you could comment on how has the behavior of retail investors evolved over the past few years from your perspective and maybe particularly since the Meme stock boom? 

 

Tom Bruni 

Yeah, great question. I think during the meme stock craze, there was this notion that people were only getting involved in markets because they had stakeholders, stimulus checks and there wasn't anything else to do. They couldn't go outside and hang with friends. And so there was this narrative that people are doing this because they're bored, they're just gambling with free money and they are going to be gone the second the world opens up. And we've actually seen the exact opposite. Retail investors and traders stuck around and they're still a force to be reckoned with in the market. But really what they've done is gone deeper within the financial ecosystem and really have taken control of their financial futures and are trying to figure out, okay, the pandemic was a wake up call. Maybe they had to deal with unemployment for the first time, their investments were down for the first time in a, in a while. 

They were trying to navigate health insurance, applying to new jobs, finding a remote job. And so there was this cluster of issues that came to the forefront and anyone that did not have a clear picture of their financial future needed to get one and very quickly. And so investing is one piece of that. And so we've definitely seen retail investors and traders go deeper. I think Robinhood's roadmap is a really good gauge for where retail investing and trading is going. Their CEO of Vlad Tenev basically outlined a full financial ecosystem that Robinhood's building so that you can do your investing there, you can do your banking there, they've got a credit card, they're tokenizing assets and doing crypto and blockchain incorporations into their platform. So really we're seeing an evolution of the meme stock craze, bringing a lot of people into the market. But now they're getting serious about their financial life and have over the last few years and are moving into more sophisticated, more long term strategies than say, investing in meme stocks at GameStop.

 

Carmen Lilly

Yeah, that's a great point. So one of the stats that I was looking at prior to this conversation that I just wanted to quote here is that in the US the percentage of households with stock holdings has increased to an all time high of 58% as of this is data as of 2022 and that was according to the Federal Reserve Survey of Consumer Finances and that's up close to 50% since 2013. To your point, I think you're exactly right that it's not just something that was like a flash in the pan and now the pandemic's gone and people don't have the stimulus checks and time to burn. I think it's something, it's a trend that's definitely going to stick around. 

 

Tom Bruni 

Yeah, I agreed. And I think to your point, the inflection point was really the late 2010s where Robinhood came in and basically democratized access to markets by bringing trading costs to zero. We saw the industry had to quickly follow and not only did they bring cost to zero, they introduced the market in a way where it was very accessible. If you were a novice, you could log into the Robinhood app and very easily buy stocks or ETFs or other investment vehicles without really having to navigate a very complex platform that say Charles Schwab or some of these legacy providers had. And there were a lot of barriers removed during this time, both from a cost and from a usability perspective. And I think that kind of opened the floodgates to people and then the pandemic was the fuel on that fire to really get people involved and have them stick around long term. 

 

Carmen Lilly 

Yeah. And just a side comment on Robinhood and retail investor experience with this recent IPO of figma, I think the sentiment, what I saw behind that in leveraging a platform like Robinhood is that there is a ton of demand from the retail space to get in on investments like IPOs, like new IPOs. And some of, I think some of the blowback I think I did hear about Robinhood is that when you have that high engagement and high demand, they're very restrictive on how many shares you can actually purchase and buy. And I do think, and to your point, you're thinking about the roadmap of Robinhood, what that looks like, I think that will change giving more power and buying power to those retail investors, especially when it comes to things like IPOs. 

 

Tom Bruni 

Yeah, I certainly think it's going to be a step by step process. Right. You're not going to be able to go from only institutions and the well connected having access to IPOs to everyone having access to. There's a lot of white space in between there. So I think we're definitely moving toward a world where people have more access. But to your point, when there is a very hot IPO like figma, there's a lot of institutional demand, it's oversubscribed, like there's only so much that is going to be left for kind of the broader retail trader investor. The positive spin on that is even if you only got a couple shares or one share allocated through Robinhood, that's one share more than you would have gotten a couple years ago. And it is progress long term. 

There's still a lot of room there to improve the process and get people more access. But overall I think it's a healthy development for the market and just a sign of there's not a lot of IPOs, companies are staying private longer. And so I think where we're headed is this kind of tokenization piece where you're securitizing other assets, private markets, real estate, and providing access to those kind of illiquid markets in a more accessible way to retail is the next step because there are only so many new companies coming to market, they're staying private longer. And so there's this feeling among retail that they're missing the boat in terms of longer term opportunities to find the next Tesla or the next Robinhood or the next Apple or Amazon.

 

Carmen Lilly 

Yeah, absolutely. And all of this, like, all of this context just plays into why IR teams should care about retail investor sentiment. So could you walk us through how investor sentiment kind of forms and spreads on Stocktwits? I'm very familiar with Twitter X and some finfluencers and how they operate, but can you talk a little bit? What's unique about Stocktwits? 

 

Tom Bruni 

Yeah, great question. So what makes Stocktwits particularly unique is that we're the largest verticalized platform for finance. So yes, you can talk about finance on X, you could talk about it on Reddit, you could talk about it on other horizontal platforms, but those platforms are not built specifically for talking about markets. And so yes, they serve a purpose. But if you really want to go deep and focus on real time conversation, the only real place to do that is on Stocktwits. And in terms of the value proposition, like I said, real time is where we win. And so stock twits is where attention and market action kind of collide. And people, active investors and traders that are looking for the latest news, the latest idea, the latest trend, have to be on Stocktwits because that's where you're discovering what's moving, why it's moving, and how you could potentially make money from it. 

So I think that's our core differentiator. We're verticalized, we're focused only on serving this audience. And we serve that kind of real time nature where five years ago, 10 years ago, people were taking longer periods of time to make decisions around buying or selling a stock. But I think I read a stat recently. People are spending like a total of six or seven minutes on stock market research or stock research before making a buy or sell decision. And that's down from 20 minutes a decade ago. And so we're seeing the time to purchase or sell, the time to transact, so to speak, come down. And so really it's our platform that can help fill that knowledge gap and get people the information they need to be able to take action quickly and profitably.

 

Carmen Lilly 

Nice. Yeah, I like that idea around an integrated experience on one platform. And your point on like time to time, from decision to action is tightening. I think that's true across most things that you look at. Right. Technology has only quickened and tightened the timelines between getting a piece of information and actually making a decision on it. 

 

Tom Bruni

Yeah, and thinking back 30 years ago, the way that you would get your stock updates is maybe your broker called you or you checked the newspaper. Now it's all real time. And we have markets that are moving toward 247 nature. So real time is getting more and more important. I think where the challenge for retail investors and traders is going to be is now that we've democratized information, now that you can get a lot of the same tools, research, resources that institutions have, how do you filter down to the aspects that you particularly care about for your investment strategy or focus? And I think digging through that noise and kind of curating your own experience on Stocktwits or Twitter or Reddit, wherever you're doing your research is the next step and the next phase in this is making sure that you're consuming the right information at the right time for your particular investment strategy. 

 

Carmen Lilly 

Yeah, absolutely. I'm now flipping that on its head a little bit. So there are a lot of chatter, a lot of noise in the retail sector. And you can look again, you can look at different platforms to get a sense of that. But thinking about how IR teams can capitalize on that or how they can leverage retail behavior. So how can IR teams really differentiate between moments that require some sort of engagement or stepping in, whether that be releasing a statement or something like that, versus moments that just call for sitting back and just monitoring the situation? 

 

Tom Bruni

Yeah, that's a great question. Obviously it depends on the company and how active they are in the space. But I think the core messaging is as retail becomes a larger and larger force in shareholder bases across the board, whether it be through the, the ETFs and other products that they're demanding from asset managers or directly by owning shares themselves, their voice matters. And what we're seeing is those companies that are able to get out there and engage with, with shareholder bases are succeeding. Robinhood, Palantir, Coinbase, like these are all companies where they're in high growth areas retail is inherently interested in. And you've got these executives going out and engaging and telling a compelling narrative about why their stock is different and why their company is going to succeed over the long term. I think regardless of what size company you're at or where you're working on an investor relation team, if you're not engaging with people where they are, you lose the opportunity to craft and control the narrative. What's being said about your company and the story that you ultimately want to tell. 

 

Tom Bruni 

Now, in terms of your question of noise versus signal, I think generally I would pay less attention to the individual messages you're seeing on places like Stocktwits and pay attention to data in the aggregate. And so what we do is we provide a really good lens into how people in general are feeling about the your particular stock or company on Stocktwits. And so we have something called the sentiment meter. It's basically a zero to a 100 scale. Zero is extremely bearish, 100 is extremely bullish. And it provides you a quick overview of how people are feeling on the sentiment scale. So that's one way activity measures are also important. How many people are searching for your company? How many people are following that company on Stocktwits? That's the retail investor's way of saying, hey, I'm interested in this company, this story, this stock, and I want more regular updates and information on it. 

And so if you're seeing thousands or tens of thousands or hundreds of thousands of people following your stock, that is a good signal that, hey, if I'm not out there telling my story, somebody in that community or some group in that community is going to take hold of this narrative and move this group in one way or another. And so I think those are the key ways, like in the aggregate, focus on how people are feeling, what the main points they're talking about are so that we can strategize and identify how do we address these concerns, how do we pour fuel on the fire, how do we re engage these shareholders that may be losing touch with the story. It's all about kind of information in the aggregate. And then at that point you'll have the information you need to determine is this signal or is this noise, should we address it or should we just sit back and monitor?

 

Carmen Lilly 

Yeah, that's a great point. One of the things that I come across a lot when I interview investor relations officers and a lot of the takeaways I get from that conversation is the need to be proactive in that and engaged in your market narrative. Unfortunately, a lot of times it's really hard for IROs to sit in that proactive space and monitoring space because they're wearing so many hats and there's so many things going on and their business cycles are really intense. I think it's really important for IROs to again continue to think about what sort of tools and services are needed to sit in that proactive space so you can really take control of the market narrative. 

 

Tom Bruni

Yeah. And the point I'D make is it's not a single point in time. Just like any other form of marketing, whether you're marketing to customers or trying to land partnerships with other businesses, you're not going to put one message out and immediately convert people. It's a story that you're telling over time, and through good times and bad, you're out there engaging. I think that's where a lot of companies make mistakes, is they think they can do one executive interview or one banner ad on a site or one campaign, and that's going to move the needle significantly in brand building and developing kind of your, your narrative, your story. With retail, it takes repetition. There is so much noise out there that even if I see a campaign of yours today, I might forget like 24 hours from now. And so if you're a company in a specific space that's doing something interesting, you should want to be able to tell that story and get out there and hit those points regularly. 

To your point, though, I think it's one part of the job. And so I think it, it often gets pushed to the back burner because it's seen as a lot of work and a lot of attention that's needed. And I certainly agree with that. But I also think if you measure the ROI over the long term, it is certainly a worthwhile endeavor to engage with retail.

 

Carmen Lilly 

Yeah, absolutely. Touched on a really good point in terms of the consistency in messaging. Now, thinking about the different ways your investment story is told throughout the market, right. So you have, you quote, unquote, the street, and you have your retail sentiment. Now, in your experience, have you seen maybe narratives on stock twits diverge from traditional wall consensus? And if so, does that tell us anything about evolving investor priorities? 

 

Tom Bruni 

So in terms of the narratives diverging on stock twits and on Wall Street, I think there's a lot of different angles you can take here, but generally where there is a massive dispersion, that's essentially where the opportunity will lie. And I think meme stocks are a good example of this in practice. Right. Let's take GameStop, for example. During 2021, we had Keith Gill, the retail army, saying, hey, GameStop's trading at 3 or $4. We think it's worth 10x that the core business is improving, fundamentals are good, and there's a lot of kind of upside here. Then we had Wall street and hedge funds shorting the stock into oblivion, basically saying, this is a dying business. Nobody's buying video games at the stores anymore. 

This is essentially going to Zero. It's just a matter of when. And so you've got these kind of two conflicting viewpoints. And what happens is if you're on the retail side and you can tell a compelling enough story about, hey, this stock might not be worth 40 where we think it's going to be, but it's not worth four either, there's a lot of white space in between where there's potential for upside. And so those types of opportunities are where retail is looking because that's where you can really, if you're trying to generate alpha and do a better job than the indexes, you have to look at kind of opportunities that are outside of the lines and see where there's a chance to drive value that's being undervalued by Wall street or the institutions. And so more broadly, I think it's important for both sides of the aisle to be aware of what everyone that they're battling against in the market is doing. We know hedge funds, we know institutions are actively monitoring stock twits, Reddit, all these online platforms, and we know that retail is actively monitoring Wall street coverage, upgrades, downgrades, 13F filings. They're all looking for an edge to identify where the other side might be wrong.

And typically when you get a massive gap between expectations on both sides, that's where you get the biggest moves and the biggest opportunities and sometimes risks. 

 

Carmen Lilly 

I gotcha. Thank you for that. And then bringing it back to IR teams, in your view, what would you say is the biggest, perhaps blind spot IR teams have when it comes to understanding how they're perceived by retail investors. 

 

Tom Bruni 

In terms of blind spots? I would say it depends on the size of the company. I think large and mega cap companies, they tend to focus primarily on their institutional shareholders, which honestly might serve them well over the long term. Depends how big your retail shareholder base is and can be. So I think for them, I think it's just a matter of resources and where they want to, where they want to put their eggs on any one basket. Putting those aside, I think the real opportunities for small mid and micro cap companies, where you've got a larger retail shareholder base, you have more of the ability to engage with them directly. I think any company that is not currently doing that in some way, shape or form is missing out. I think the worst thing that you can do is just pretend that the shift that we're seeing in the market is not happening. Retail is here to stay. 

We're seeing fund flows and where they're investing and how they're investing. Has stuck around and is only getting more ingrained into the way that Wall street operates. And so I think that the key piece is to just acknowledge that this is not going away and that they need to develop some sort of plan. And then at the micro level, I would say if you can at least understand at a high level what people are saying about your stock, how are they comparing you to competitors? What are they focused on? What do they want to hear in the conference call? You can do a lot of basic work to get that information. And at the very least, if you're not engaging with them directly, you can make sure that in your press releases or other widespread communication with investors that you're addressing those concerns and weaving it into the narrative and the story that you're building.

 

Carmen Lilly 

Yeah, absolutely. Sometimes I look at retail investor sentiment somewhat like the canary in the coal mine is if they're chatting about it and they're so directly tied to the consumer experience as well. And I think that as an iro, to your point, this is something maybe you don't have to engage with retail investors very deeply, but you should at least be monitoring and understanding what they're saying about your stock especially and maybe in some of the negative contexts there. And then you should take that and good IROs. What they'll do is make sure that their C suite and especially their CFO is informed of, hey, here's what the market is talking about for us. This may influence our stock price on the over the next week, month, whatever it may be. So even if they're not choosing to engage, I think it's super important for investor relations teams to be monitoring and listening as well as facing these head on with their C suite and saying, hey, this is the chatter. This is what is being signaled right now in the market. 

 

Tom Bruni 

Yep, agreed. I think retail is becoming a more and more respected portion of company shareholder bases. And like I said, we, we've got some pretty clear success stories of companies that are doing it well and engaging with their audiences. And retail can either be a force that benefits your company and it and is cultivated for good, or it's something that could be a major headwind if you choose to put your head in the sand and ignore it. 

 

Carmen Lilly

All right, so what are some ways I feel like we can't escape any conversation without talking about AI? So we'll head on. How do you see AI changing the way sentiment and retail voice are tracked and understood? 

 

Tom Bruni

AI is the big story that everyone is trying to solve. As I noted earlier, we've democratized Information, we've democratized access. I think the next phase for Stocktwits and any platform that's serving retail investors and traders is personalization and customization. So whether that be an AI agent that is working with you or different AI tools to help you synthesize information and get to the insights you need quickly. Like ultimately you want to get to a place on stock threads where if you are a, you know, a large cap value investor and come into our platform, we know how you invest, we can suggest some stocks to follow, we can suggest the trends that are important to you, we can get you the information that you need about stocks on your watch list very quickly. And so it's all about filtering information and customizing the platform experience for the individual investor or trader that's using it. So I think that's the broader theme that I think is an immediate use case of ui, of AI. Longer term, I'm sure there will be a lot of different automated investment strategies where it's one click solution, hey, I want this type of portfolio, figure it out for me, do the investing and I'll check in on it regularly here and there. 

But I think for us our focus is we know we have an active investor and trader community, we know generally what type of information they're looking for, we know the time from thought process to transaction is shrinking. And so how do we get you the information you need fastest? How do we derive insights for you, how do we help make that investment decision process easier? And I think Stocktwits, so far we've done a great job of kind of making the platform a bit more accessible for people by using AI. So a great example of this is earnings calls. You can listen to the earnings call live on Stocktwits, you can sit through the conference call, take notes yourself, or you can wait until it's over. And we have an AI summary that basically pops out the main components, what you missed and gives you a general idea of how investors are reacting. So we're using a lot of those like top, top level filters for people to help them synthesize the information that they might have missed, get a quick summary and move on with their investing process. We also outlined why it's trending. So we have a trending bar basically showing you where the attention is, where the market action is.

Each one of those in the trending bar has a five or six sentence summary of why it's trending, what news is happening, what retail's saying, why the stock's on the move. So those are a lot of the initial ways that we are rolling out AI at Stocktwits, but longer term, I think every platform is going to have to customize the experience and really help the individual investor get their specific information. 

 

Carmen Lilly

Yeah, absolutely. At S and P we also struggle with the same things in terms of discoverability. Right. And as well as trying to leverage AI in our favor to help clients with time to insights, there is a ton of data. To your point, there's a ton of data out there. So like, how do you actually pay attention to the data that matters most? And I think that's a I struggle that a lot of companies are going to be trying to tackle over the next couple years here. Thank you so much for your insights here. We're running out of time, so I did want to just close with one last question for you. 

So what is one piece of advice you'd give our listeners today?

 

Tom Bruni

One piece of advice I would give listeners today is regardless of where you sit in the investing environment, whether you're an individual investor, an institutional investor, investor relations person, an executive, embrace retail investors and traders in some way, shape or form in your process. And there's obviously a scale that we talked about here, but you need to be incorporating what retail is saying into your process in terms of managing your business, controlling the narrative around your stock price and your company, and really just engaging and creating a diverse and convicted shareholder base that's going to stick with you through thick and thin and figure out how to incorporate this data and these insights into your process. And if you channel retail appropriately, I'm sure the results will be a positive benefit for your company, will speak for. 

 

Carmen Lilly 

Themselves, so to say. 

 

Tom Bruni

Of course. Yeah. 

 

Carmen Lilly 

All right, thank you all for listening in your time today. And thank you to our special guest, Tom Bruni with Stocktwits. I very much enjoyed this conversation and definitely learned a lot from this discussion and I hope you did too and found value in tuning in. If you have topics you'd like to have covered, please email me at carmen lilly@spglobal.com and until then, happy listening.