In the mid-1980s, Nancy Reagan introduced a national anti-drug campaign that essentially told kids to “just say no” when asked by a drug dealer whether they would like to partake in drugs. The problem was that some kids began just saying no when their parents tried to soothe their stomachs with Pepto Bismol and other so called drugs, even though they were not of the mind-altering variety.
What an apropos scenario when public companies consider whether to talk to hedge funds. Should we just say no when fast money tries to communicate with a public company? Or are we inadvertently warding off potentially loyal investors who may actually help soothe volatility during a rough market?
Quite frankly, it is difficult to decipher whether a hedge fund is going to help induce an all-time high in a company’s stock price or whether that high will be short lived. One rule of thumb is to do a little due diligence on a prospective investor before communicating with them, regardless of whether they make the “shark list.” Talk to the sell side and arm yourself with as much information as possible.
Do not hesitate to ask an investor questions when engaged in conversation. After all, it signals that you are as much engaged in your story as you are in your investors’. And that will signal to the Street that no matter what new highs or lows an investor takes your stock, you are not resigned to “just saying no” and blindly warding off medicine that may actually be good for a company’s stock valuation.
— Evan Pondel, Vice President, email@example.com