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The Psychology of Investing: Strategies for Understanding Shareholders

The Psychology of Investing: Strategies for Understanding Shareholders

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Published by northpoint
Unlocking the mysteries of human behavior can be your ticket to driving shareholder value
Unlocking the mysteries of human behavior can be your ticket to driving shareholder value

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Published by: northpoint on Mar 17, 2009
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09/10/2010

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L
eadership
i
nsight
 Essential Skills and Strategies for Managers of Growth Companies
by Kirby Cochran
 
Unlocking the mysteries of humanbehavior can be your ticket to driving  shareholder value.
 
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
 
TABLE OF CONTENTS
The Psychology of Investing
1. Stock Price Shepherds2. Why Investors Buy Stock 3. Investors Are Emotional4. Drum Roll Please . . . I’m About to Buy Stock 5. One Point in Time6. The Rubber Band of Volatility7. Should I Stay Or Should I Go?8. Culling the Herd9. Emotional Twin Powers: Fear and Greed10. Fear: First Loss, Best Loss?11. Greed: Pigs Get Slaughtered12. Discipline13. What is “Fair Value?”
14.TheEfcientMarketHypothesisandOtherDistractions
15. Supply and Demand16. Taking Charge of Your Future17. Conclusion 1235681113151618192022242426
 
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
 
1. Stock Price Shepherds
It starts with the shareholders.Shareholders drive the value of the company. However, it is myobservation that most Senior 
Managementteamsfailtounderstand
how their shareholders can affect thestock price of their companies. Somemanagers are even contemptuoustoward shareholders, looking at their responsibilities to the shareholders asan unnecessary burden, an annoyancethat interferes with the running of the business.When management teams dounderstand how shareholders drivethe value of the company
1
(after all this isn’t something they could pick up in business school or from
traditionalconsultingrms)they
want to know more about their shareholders. They have spent years
learningtheirbusiness—thespecics
of their industry and the competitivelandscape. They go to great lengthsto understand the customers who buytheir products and services and howto manage their production and salesorganizations.In contrast, they may have beenonly passively involved in gettingand retaining their shareholders.Unfortunately these management
teamsoftenlookatequitynancing
as just another fundraising effort tofuel their goals for the business andgive little thought to the obligationsand responsibility which comes withhaving a base of shareholders.
AsSeniorManagementworktofullltheirmandatetoincrease
shareholder value, they ought torealize that they have becomestewards of two sides of the business(generating sales/earnings
and 
 increasing their shareholder value
throughraisingthestockprice).
These two sides are just like a Yinand Yang of growth and success–twoinseparable halves that require equalnurturing for the company to flourish.
SeniorManagementteamslookto
 better understand their shareholders;the under-served and neglectedside of their business. They needto know what threatens and whatencourages investors to buy and selltheir stock. One absolute necessity for management teams is to understandthe psychology of their investors.

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