Time to retarget the individual investor.

• Author: Mahoney, William F.
• Position: Chairman's Agenda: Balancing Shareholder Interests

Time to Retarget The Individual Investor

Where have all the individuals gone? Individuals no longer are the movers and shakers of the U.S. stock market, but they're still the rock. While institutions account for about two-thirds of daily trading, American households still hold some 55% of the common stock of U.S. companies, as last counted by the Securities Industry Association (SIA). For a fair figure, added to that should be all the assets invested in stocks of pension and mutual funds where individuals are either the customers or beneficiaries, even though the money is being institutionally managed.

Despite their clout, individuals have become something of an enigma to both corporations and the investment community. With Wall Street, it's strictly a matter of economics. Commission revenue from stock transactions is down - both in the retail and institutional segments. Reduced revenue means fewer brokers and analysts; the circle is turning.

With companies, it is the institutionalization of the market that has chased individuals down the priority ladder. Institutionalization facilitates capital formation in many ways: * More stock can be placed more quickly by institutions; * Waves of institutional buying push up the price faster; and * The institutional market is more efficient, more easily defined, and more readily reached in the contact process, with more measurable results.

Companies clearly are caught up in that institutional world, easily justifying it, because that's where the market is and is going, where stock prices are set, and where relationships can be built, with measurable results. That's reality.

But the question becomes how much emphasis individual investors should receive in corporate communications programs. Individuals are "the market" for small companies because the amount of shares available tends to not be enough to attract a lot of large institutions. But individuals are good for large companies as well. They are inclined to be longer-term investors, with goals that involve building a "nest egg" and saving for specific future needs, and they are very bullish about reaping the returns from letting investments mature. They tend to stay focused on the fundamental strengths of the company that are so essential to higher valuation.

The conviction is almost universal that individuals are important to the economy, the stock market, the ability of business to raise money, and even to the successful investing by...