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- Investor Public Relations Navigator SystemTM (patent pend=
ing)
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- Over time, a company’s stock price and volume move in “waves” -- up =
and
down.
- Wave theory can identify time periods -- impulse waves -- that are
heavily populated with retail investors.
- With a heavier media relations campaign during the retail investor
impulse wave, a company can extend the survival power of the wave.=
li>
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- When a stock hits a low point in the market, the general feeling am=
ong
investors is of unhappiness. People are afraid to purchase. There is, however, always a small
minority of people who believe that this is the time to buy. They lo=
ok
for the “bottom” that gives them the edge of “buy low.” They have a
higher risk tolerance and are taking advantage of other people’s fear
and vulnerability. Their action of buying at the low induces the fir=
st
market rise - creating Wave 1.
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- As the stock begins to rise, most investors still feel negative and
stay out. Those who bought “low” after the previous decline will be
anxiously watching the market. Since they believe that the future eq=
uals
the immediate past, they are very concerned about the short-term fut=
ure.
When the stock makes a short-term top and starts to decline again (W=
ave
2), they become very anxious and sell quickly in order to try to gain
something rather than nothing. They are quick to get out.
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- The downward trend of Wave 2 usually does not go all the way down =
to
where it was before. When people notice that it is not going down to
new lows and that prices are starting to rise, they start to invest
again. The market rises again on the third wave. Wave 3 has the
heaviest buying of institutional investors.
- This wave is generally considered to be the point of recognition f=
or
retail investors. A number of retail investors come in late in Wave=
3.
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- Usually Wave 4 is a high level consolidation rather than a sharp dr=
op.
Profit taking occurs for some institutional investors who entered ea=
rly
in Wave 3. The investors, often retail investors, who bought late du=
ring
Wave 3, lose out the most.
- Other retail investors, who recognized the stock in Wave 3 but didn=
’t
buy, see the high as consolidation occurs. The downward move of Wave=
4
makes the stock price look inexpensive. The “cheap” stock becomes
tempting because of the heavy gains seen in Wave 3.
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- Then comes Wave 5. This is the wave where many retail investors sta=
rt
investing because everyone else seems to be making a lot of money. A=
nd
they don’t want to miss out on “buy low and sell high.”
- The power of Wave 5 is largely dependent on the strength of the ret=
ail
investment confidence.
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- The best case for a company is for Wave 5 to extend well beyond Wave=
3.
Sometimes, however, Wave 5 truncates or falls apart after a short ri=
se.
This occurs with weak retail investment.
- If the wave extends, additional retail investors will come into the
company’s stockholder investor pool.
- Can we strengthen Wave 5 by triggering a heavier retail investor med=
ia
campaign?
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- “Timing Retail Investor Communications with Wave Theory” by Ernest F.
Martin, Jr., Ph.D., Associate Professor, School of Mass Communicatio=
ns,
Virginia Commonwealth University
- Eighth Annual International Public Relations Research Conference, Mi=
ami,
Florida, March 10-13, 2005
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- Hypothesis: Cases with higher media coverage will maintain a quality
retail investor wave significantly longer than those with lower media
coverage.
- The Sample: 50 stocks completing Wave 5.
- News stories database: LexisNexis.
- Statistical analysis: Kaplan-Meier survival analysis using summation
metric of days in the wave and technical indicators into an algorith=
m to
represent the wave’s intensity, mass and extent.
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- Retail investor waves with higher media coverage (pink line) had a
significantly higher survival level than with waves with lower media
coverage (green line).
- Kaplan-Meier survival analysis
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- The results indicate we can use wave theory to determine the start a=
nd
ending points of retail investor waves.
- The survival analysis demonstrates that by timing for higher levels =
of
media coverage, the life and quality of the wave can be extended –
increasing the likelihood of additional retail investors.
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- Timing media coverage with the appropriate impulse provides a
significant public relations advantage for a company’s media campaign
for retail investors.
- Success of a campaign will be furthered by coupling the timing of the
campaign using wave theory with 1) key message strategy development =
and
pre-testing; 2) news release/news article LSA metric; and 3) key mes=
sage
coherence scoring with LSA.
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