Long ago a fund manager I know was explaining Public company operations to a newly minted small cap CEO.
He said, “As a public company CEO, you now have two jobs:
1) Managing your company and
2) Managing your stock”.
He continued to say that managing your company well doesn’t ensure that your stock will perform.
He was right, many CEOs believe that just executing their business plan and showing great performance will be reflected in the share price. It’s like expecting your boss to recognize the blood, sweat, and tears you pour in to your work and stop to commend you for it. Unfortunately, that rarely happens. CEOs need to execute and communicate to make sure investors have a reason to buy and hold.
Small Cap companies have an even tougher job maintaining share price as market players have been increasingly dissuaded from investing in small cap opportunities.
Companies are always interested in meeting new funds that will absorb the float in the market and help push a stock higher, but they should realize that having a broad shareholder base is usually more effective in having a stable share price.
So the answer Is:
When a public company has a handful of shareholders, it is actually a private company with a lot of regulatory and reporting requirements.
I always encourage CEOs to actively manage their shareholder base and grow it. Management needs to be proactive by communicating with the Company’s fan base and commit resources to grow it over time. Only then, will the liquidity grow to the point that an institution can start to get comfortable.