What Makes Your Stock Price Go Up and Down

Summary:

In the article “What makes your stock price go up and down,” the authors Kevin P. Coyne and Jonathan W. Witter discuss why corporate executives should identify and understand their key investors to determine their share prices. They studied the relationship in change in share price and the buying and selling of companies by the most critical investors. They used this data to develop recommendations for corporate executives for how to better predict how their announcements and news will effect a companies’ share price and how best to counter if needed.

The authors discussed how companies normally try to forecast share price changes but that it is not much more than a rough guess. They mentioned net present value and conversations with sample groups. They suggest that a company can dramatically improve the accuracy of their predictions by determining which of their investors really matter. They suggest that contrary to popular belief, there is only a maximum of 100 investors that matter to the changes in share prices of a company. They suggest that by focusing on this small group of investors the same way they would focus on their top customers they can better determine how their share prices are going to move. They recommend that a company needs to dedicate more resources to determining who their key investors are and to determining what motivates them. They gave several examples of how the main investors affected stock price such as an announcement of a merger. The authors suggest that by knowing how your key investors are going to react to announcements the corporation can either prepare the board for the effect or they can develop a game plan to counter the effects. They also recommended that a company spend the resources to probe why an investor reacted to past activities to determine how they are likely to react to their strategies.

They discussed how the corporations should keep not only a portfolio on their current top investors but also...