Hungry for investors, some companies woo individuals

Retail trading now accounts for almost as much volume as mutual funds and hedge funds combined, executive says

After CarParts.com reported its quarterly results last month, executives at the company, which sells replacement auto parts, did what many of their ilk do: They held a conference call with Wall Street analysts, fielding questions about inventory levels, profit margins and corporate strategy.

Roughly 30 minutes later, the same executives were on Clubhouse, hosting an entirely different kind of audience. Their 2,000 or so guests had gathered at the buzzy online meeting spot to learn about the company. Their questions were far more straightforward. How did the business work? Why was CarParts.com able to offer lower prices than brick-andmortar rivals? Were CarParts.com shares worth buying?

David Meniane, CarParts.com’s chief financial officer and chief operating officer, called the session an experiment.

“We’re trying to disrupt the way people fix their cars,” he said. “Is there a way for us to disrupt how retail investors communicate with management?”

As the stock holdings of American households have soared to a record level over the past year, dozens of companies are suddenly paying more attention to individual investors. Some, like CarParts. com, are trying to transform newly minted traders of Reddit-fueled viral “meme stocks” like GameStop into dedicated shareholders. And some of those meme stock companies, including GameStop itself, are issuing new shares.

“The individual shareholder is back,” said Lawrence Cunningham, a professor at George Washington University Law School, who researches corporate governance and runs a research project that studies individual shareholder behavior. “Corporations would do well to pay attention and cultivate them.”

Small investors who buy single stocks have not been a major force in financial markets for the better part of half a century. In the 1960s, such investors controlled over 85 percent of the stock market, with most portfolios built around concentrated holdings in a few blue-chip companies.

But in the 1980s and 1990s, as people moved their money into mutual funds and 401(k)s, large fund managers and Wall Street analysts became the constituency most important to corporate America. According to SIFMA, a brokerage industry lobbying group, individual investors owned just 38 percent of the stock market in direct shares in 2018.

Such investors were growing in influence before the pandemic, partly because of the popularity of free trading apps such as Robinhood, which meshed the buying and selling of stocks with gamelike features. And companies like Tesla have long had a loud and loyal base of investors who follow founder Elon Musk’s missives on Twitter.

But with millions of Americans stuck at home during the pandemic, the trading trend escalated. According to the Federal Reserve, American households bought roughly $211 billion in individual stocks last year — the highest level since 2014.

“Retail trading now accounts for almost as much volume as mutual funds and hedge funds combined,” Amelia Garnett, an executive at Goldman Sachs’ Global Markets Division, said on a recent podcast produced by the firm. “So, the retail impact is really meaningful right now.”