Our Best New Ideas To Attract A Cadre Of Solid, Long-Term Investors That Will Create Big Value For Your Company
In our last issue we published some pretty grim statistics about the huge number of individual investors that have given up on owning common stock. We are at the lowest levels since the Depression. And as we write this, the U.S. stock markets are following China’s panic selling wave… creating more money down the drain for investors who get spooked - but also creating huge buying opportunities for folks who still believe in America, and in the proven, long term-wealth-creating history will arise from “Owning Your Share in America.”
Remember that old slogan? - It actually jumpstarted the mostly upward-trending stock markets we’ve enjoyed since the late 1950’and through the 21st century too, for patient investors who were smart enough not to bail out during the financial crises of the 2000s - which we call “the decade of the noughties…and the naughtys” - since all those naughty execs generated total returns to investors over that decade of zero.
So here are three relatively new and highly innovative ways that would jumpstart our individual investor base, raise new equity and take advantage of the many benefits that come from having a strong and committed base of long- term individual owners:
1. The “biggest and best new thing” on the individual investor scene comes from a company called STOCKPILE: It recently began to sell gift cards that allow us to buy smallish amounts of stock - or “gift it” to our kids, grandkids and friends - in hundreds of companies - in amounts between $10 and $1,000 per card. Their website is incredibly easy to use, and it allows us to search for stocks based on categories - like Entertainment, Food, Kids, Luxury, Tech, etc. - or by popular brand names. So if you like Doritos or Lays you’ll get info about Pepsi; Nerf or Playdoh, you’ll find Hasbro; Dora the Explorer = Viacom (who knew) and Spalding or Dairy Queen gets you to Berkshire Hathaway….which we guarantee will never, ever offer a DSPP on its own.
The best thing for individual investors is the delightful ease-of-use, and the lack of all the burdensome paper and paperwork that comes with traditional Dividend Reinvestment and Direct Stock Purchase Plans - which your editor’s kids - with six custodial accounts - and lately, your editor-in-chief himself - find truly maddening.
The best and biggest thing for corporations? No paperwork at all for them, nothing to “administer” - and no bills to pay - except, we assume, for a smallish annual fee to distribute “Notices” at annual meeting time.
The thing we like best is that it can help to create, and educate, an entirely new generation of investors.
Sad to say re: those TA-administered and “sponsored” models, this is a very “disruptive” use of technology that puts many of the T-A plans in serious jeopardy. Company- sponsored plans will still work best - by far - IF the company actively participates in the sales and marketing efforts. But we think that most “T-A-Sponsored-Plans” - that never performed very well anyway - are “toast.”
2. Another of our top-favorite ideas for attracting investors that “pay their way” comes from a company called Loyalty Shares…And damned if we can understand why the idea of allowing loyal customers to turn “rewards points” directly into shares of stock has failed to take off, as logically thinking, it should.
The first-adopter here was Jameson Inns - a big player in the overcrowded and hotly contested market to provide modestly-priced lodging to regular, small-business travelers. And actually, they had not had a loyalty program. But their innovative campaign - that invited road-warriors and other frequent travelers to “Invest While You Rest” - and gave the participants $10 worth of Jameson shares for every $100 they spent - enjoyed a huge success from the get-go, back in 2002. But when, within just a few years, the suddenly fast-growing chain was taken over by private equity investors, there was no more stock to be had.
Ellen Philip, whose company still has all the systems and SEC approvals needed to launch more loyalty programs like Jameson’s recalls that they were swamped with calls and letters from investors who wanted to keep their stock rather than take cash from the acquirer. And, as she and partner Cal Donly point out, there is another big bonus to be gained by turning points (which are a liability on the balance sheet) into assets as new shares are issued, as Jameson did. So we are truly stumped as to why this has not caught on in a big way - especially in highly competitive fields like telecom, where consumers are always being offered deals to switch providers, and where the industry itself has a very good handle on the cash value of each and every subscriber.
The only logical explanation we can think of for not adopting a plan like this if you are a hotel or restaurant chain, airline, cable company, hardware-depot or telecom, is the fact that a huge number of all ‘loyalty points’ awarded expire unused each year…which indicates, to us at least, that they are clearly not generating a lot of real loyalty at all! And here too, we think the concept has been ignored because of the way most companies have been ignoring, and greatly underestimating the true value of having ‘serious’ individual investors. But ultimately, we DO expect this idea to take off, because it makes so much economic sense.
3. Our top-bet for the biggest revolutionary change ever, where individual investors are concerned, has to do with “crowdfunding”: Initially, we were among the many skeptics here. And we were quick to quote the quip that the initials of the JOBS Act really stood for “Jumpstart Our Bilking of Suckers” - rather than “Jumpstart Our Building of Jobs.” But, with the passage of Title III to the act, and after talking with Gene Massey, the CEO of crowdfunding firm MediaShares, we’ve changed our tune. Where previously one needed to be an “accredited investor” - with over $1 million in assets, ex home ownership, or $200k or more in annual income to invest in startups, Title III allows “regular people” to invest modest amounts in crowdfunding programs, year after year. And as Gene pointed out regarding the possible bilking part, the Internet itself - aside from helping to launch and propel new ventures at incredibly low cost via social media - provides an amazingly fast and effective policing mechanism. (He mentioned an offering in England, where the would-be offeror had stolen the entire business proposition from another company, and who was “outed” within a day or two.) Yes, one is taking a gamble here - as one does with ALL IPOs - but this is the only way we can think of for a really small investor to get in on the ground floor of a venture that could become the next Apple, or Google…so Cheers!
And interestingly, as a new year dawns, we also noted a nice and long overdue upsurge of interest in other programs that help companies attract a strong cadre of loyal retail investors: In the third quarter, JP Morgan Chase joined up with Motif Investing, Inc. to allow individuals to invest as little as $250 in IPOs where JPMC is the lead investment bank. Mobile payments firm Square Inc. announced that it will set aside a chunk of its upcoming IPO and allow Loyal 3 - another loyalty-oriented brokerage firm - to offer shares to retail investors. Loyal 3 has made more than a dozen IPOs available to small investor clients and/or to targeted segments, like customers, since 2013.
In the UK, where the government recently sold off most of its shares in Royal Mail, it will give away 1% to the employees - who already owned 10% of the company. The government also plans to sell at least $3 billion of the shares it owns in Lloyds Banking Group to the general public - and will give them a 10% discount on the market price - plus one bonus share later for people who hold the stock for over a year. And in Texas, HEB - a family-owned regional grocery chain that is one of Texas’s biggest private employers, with 55,000 employees, will give away 15% of the company shares - that will also pay dividends as earned - to full-time employees over 21 with a year’s seniority.