Many executives spend too much time communicating with investors they would be better off ignoring. CEOs and CFOs, in particular, devote an inordinate amount of time to one-on-one meetings with investors, investment conferences, and other shareholder communications,¹ often without having a clear picture of which investors really count.

The reason, in part, is that too many companies segment investors using traditional methods that yield only a shallow understanding of their motives and behavior; for example, we repeatedly run across investor relations groups that try to position investors as growth or value investors—mirroring the classic approach that investors use to segment companies. The expectation is that growth investors will pay more, so if a company can persuade them to buy its stock, its share price will rise. That expectation is false: many growth investors buy after an increase in share prices. More important, traditional segmentation approaches reveal little about the way investors decide to buy and sell shares. How long does an investor typically hold onto a position, for example? How concentrated is the investor’s portfolio? Which financial and operational data are most helpful for the investor? We believe that the answers to these and similar questions provide better insights...