Investor relations is essential for companies, since it is all about the communication of relevant and necessary information to help the financial community consistently form an informed opinion about the fair value of a company. Next to e.g. bonds, currencies, raw materials and real estate, equities are just another asset class to invest in. Since thousands and thousands of companies are quoted globally, an investor has ample choice in picking its stocks. Therefore it is a pre-requisite for every company to consistently communicate relevant and necessary information to help investors and analysts appreciate its story.

Risk versus reward

It is a given that investor preferences differ over time. Investment styles differ per investor, such as a growth-based investment strategy, value, GARP or absolute return-based. Investors and analysts will have different views on matters such as sectors and regions, macro-economic developments and currency trends, and those views will evolve over time as well. For any investor the driving force should be risk versus reward. Risk must be rewarded and a higher risk therefore demands a higher reward. An investor could potentially reduce its risk or improve its reward by increasing its information on a company, resulting in a better investment performance.

Achieving Fair Value

A proper investor relations strategy should not be about managing the share price. Investor relations is about helping to a company achieving its fair value. Investors and analysts should be able to form a clear understanding of the company, its strategy and prospects. The past, the present and assumptions regarding the future are the ingredients for their different valuation models. By providing the building blocks to analysts and investors a company increases its chances that it is achieving its fair value.

Neither art nor science

Investor relations is not science, since - as in art - there is no one right way to go. Different solutions to cater equally well different tastes. But it is not art either, since - as in science - there are do’s and don’ts determining the amount of success, despite differences in taste. It requires specific skills, past experience, the right tools, but also common sense. And one thing is certain: investor relations is a must for any listed company.