The importance of effective communications in attracting investors is well understood by today’s investor relations officers – and one of the oldest and most widely used methods of communicating with the capital market masses is through a press release. Companies disseminate press releases when they are seeking broad distribution of their message using company websites, social media platforms and wire services that circulate the news to journalists. Now it appears that old tool is taking on new significance.
Ever since the 1980-1990s when trading began to be executed electronically, there has been a consistent effort to increase the speed with which trades can be executed. After all, the faster you are able to establish your position, the more profit you should expect to make when you are responding to a change in the market.
Now with the increased adoption of new technologies and the introduction of tools like artificial intelligence, institutional investors are creating new algorithms that can process millions of words and make buy/sell decisions in milliseconds. It’s estimated that 60 percent to 70 percent of overall equity trading is being done algorithmically. So what does that mean for investor relations teams crafting content in 2022?
A tale of two investors
Today’s IRO needs to know that there are now two broad audiences being addressed by online communications. The first is the algorithm. Algorithms scour the web looking for information that mentions stock tickers and important keywords or phrases like ‘success’, ‘beats earnings’ and ‘improved forecast’. The algorithm then looks at the key indicators of a stock’s performance and makes the decision to buy or sell. That all takes place in less than a second.
Then there are the living, breathing institutional and retail investors who will analyze a limited volume of information (at least compared with the algorithm), evaluate the setup for a ticker and make a decision to buy or sell. But as humans will never be faster than an algorithm at buying or selling based on the news, live investors are more likely to be reacting to both news and movements in the stock price and will make their decision based more on a company’s long-term growth potential.
You might ask yourself: ‘If we’re seeing stock prices perform well for companies that are issuing loads of press releases, should we be flooding the wire to try to increase our stock price?’ The short answer is no!
Developing the winning strategy
While there may be some benefit to keeping your name in the headlines, there are several reasons why you should consider limiting the frequency of your press releases:
- Algorithms will change and improve – Like Google’s search engine algorithms, investors’ algorithms will get better at discerning relevant news from fluff, so a strategy based on frequent press releases is not likely to work in the long term
- Real impactful news will get lost – If you want to see a big impact on the investment community from your most important press releases, limit the number of lesser newsworthy and unnewsworthy releases
- You’ll lose your (human) audience – If you are continually asking investors to spend their precious time consuming your unnewsworthy releases, you run the risk of training them to ignore your content. Even worse, you’ll lose credibility with your media partners and industry influencers
- Protect your team’s resources – When you overcommunicate, the investor relations team needs to spend more time managing the clutter and reiterating the critical elements of the company value proposition when corresponding with the investment community
- Preserve your company’s reputation – Investors will start to question the validity of the business if they think the leadership team is spending too much time releasing mediocre news rather than taking on important business milestones. Overusing the press release may lead investors to question whether the company is trying to mask poor performance with PR campaigns.
Knowing that algorithms play such a vital role in today’s marketplace and knowing how issuing press releases may impact those algorithms are important pieces of information for IROs. Issuing press releases for the right reasons and using keywords that are likely to attract both algorithms and human investors are the keys to success for a modern press release strategy.
Alyssa Barry is principal and co-founder of irLabs