Piles Of Money
There is a lot of dry powder
A few weeks ago, my wife and I flew to Queensland for a holiday. The flights alone were just under three times what I would usually pay, and the experience wasn't much either. The flight was delayed, the plane was cramped, there was no wifi, and the child sitting behind me decided to spend the four-hour flight practising their best Jimmy Barnes impersonation.
"It's expensive, but it's worth it," was our mindset. Our savings had grown through the pandemic and a holiday felt long overdue. It turns out that we weren’t the only ones with this mindset. Consumers around the world are stumping up the premium for food, fuel, travel, retail, and entertainment.
Like many Australians, we also didn't break the bank for our little indulgence. Yes, things are getting more expensive week to week, but the average savings rate for Australian households is still above pre-pandemic levels (though it is declining).
It appears that despite the fears about the rising cost of living, the average Australian is still sitting on a healthy amount of dry powder.
Piles of money
The current household saving ratio is 8.7%, which is down from a whopping 23.7% in 2020, but up from the pre-pandemic average of ~5%. If you also remember from previous articles, retail investors are rather important nowadays. When the biggest influence on your share price is flush with cash, it’s a big deal. In the past year alone, US households have poured almost $90bn of fresh cash into US stock funds, and they still have cash to burn.
It turns out that this isn’t exclusive to retail investors, either. Recent reports suggest that institutional investors are also sitting on piles of money. In the VC world, for example, this report suggests that US VC firms are sitting on $290bn of dry powder and want to start using it within the next 12 months.
In short, there are investors of all shapes and sizes with lots of cash, and this is a huge opportunity for issuers.
The opportunity to generate demand is now
Investor engagement has many parallels to, and in marketing terms, many investors are currently at the "top of the funnel". This means that they’re not yet ready to invest, but they’re starting to explore their options.
In terms of how companies are responding to this behaviour, there are two categories:
- They’re disheartened;
- They see the big picture.
Let’s start with the companies that are disheartened, since their journey is easier to understand. These companies have likely tried to engage the market, but have seen limited return on investment for their efforts. In some cases, the keyboard warriors on unmoderated forums simply see their efforts as an opportunity to take some cheap shots. When faced with a non-response at best, a negative response at-worst, these companies shut up shop and wait for the storm to pass.
The ones that see the big picture are the ones that understand the seasonal nature of investor decision-making. Even if their share price continues to be volatile and despite opening themselves to investor criticism, these companies continue to engage the market. For these businesses, they understand the process and know that when the tide comes back in, their company will be an attractive investment opportunity to the market.
But aren’t investors fickle?
I’ve written extensively about how low-friction investing reduces investor loyalty, and you might rightly point out that investors are fickle. But that’s only part of the story. Whilst an investor’s action of buying or selling may happen quickly, the influencing narrative behind that decision builds over a longer period.
To continue the marketing comparison, the concept of “brand building” also applies to investor engagement. Marketing science tells us that customer loyalty, whilst valuable, has a significantly weaker impact on consumer demand than brand strength. Take Coca-Cola as an example, most of the Coke product revenue comes from “occasional consumers” (aka drink a few cans per year). Coca-Cola therefore spends billions in ensuring that the few times a consumer chooses to consume a soft drink, Coca-Cola is their choice.
The same logic applies to investor engagement. Right now, investors are starting to get thirsty.
I don’t know when they’re going to make the decision to invest (who does?), but as the Chinese proverb goes, "The best time to plant a tree was 20 years ago. The second best time is now."
Keep sowing the seeds of demand
So what should you start doing in order to grow your demand in these conditions and get your company onto investors’ watchlists?
- Build a presence in investor communities
A few weeks ago, I wrote a larger piece on how to build an investor community. Within it, I stressed the need to participate and contribute with sincerity. This is one of the most effective ways of building investor demand because it shows your commitment to investor engagement despite market conditions.
- Respond to your investor questions in scalable ways
Responding to investor questions, no matter how naïve, rude, or sensitive the information may be, is a highly effective way to build trust with an individual. Where many miss a trick is in scaling their answer so that more investors can see your answer. If one investor has asked it, you can bet your bottom dollar that more investors are thinking it. By turning investor questions into content, you’re giving the market the information that it wants.
- Participate in media requests
Whether it’s a podcast, written media, or video, don’t be camera shy. Media is very effective at distributing content into public and private social media forums, which is where your future investors are. Saying yes to media requests is a very a simple way to get your message in front of thousands of people.
- Build your email list
If you’re playing Amplify Bingo, then you can cross “get investor emails” off the list. I’ve written about it extensively, but I’ll say it again, a healthy investor email address is one of the best assets that a public company can own.
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