Mssrs Palter, Rehm and Shih at McKinsey offer an insightful analysis of investor behaviour in “Communicating with the Right Investors” (McKinsey on Finance, Number 27, Spring 2008).  They break down investors into three categories: Intrinsic, Mechanical Investors and Traders.

Investor relations departments need to conduct a similar analysis of their shareholders to determine which make the most sense to focus on.

Both Mechanical Investors and Traders are influenced by figures - they buy and sell on specific financial models or short term news. Interaction with management will not influence their decisions. McKinsey says to relegate these to the investor relations department.

Intrinsic investors spend more time researching companies, and will want to understand from management their strategy. These investors probe deeply and stay for the longer term.

In short, IR departments need to segment their shareholders (existing and potential) and allocate management’s scarce time to investors in for the long term.