Last week the American cinema chain AMC started offering a free box of popcorn to anyone who owned its shares. Soon afterwards, armies of small investors, the same crowd that drove the valuation of GameStop through the roof at the start of the year, piled into the shares, sending them into the stratosphere. AMC took a lot of flak for encouraging wild speculation. But in truth there was also the, ahem, kernel of a good idea in there.
Better the mob than the hedgies
Regulators will argue such perks encourage speculation. In some cases, perhaps, people will be tempted by the special offer, and not spend as much time as they probably should looking at the balance sheet, checking the price/earnings ratio, and working out whether the company has the right strategy for growing the business. Against that, however, there are two big advantages to the freebie.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
First, it encourages long-term ownership by small investors. The percentage of equities owned by private investors in the UK has stabilised after many years at 13%. In the US it has even started to edge up again, fuelled by free trading apps, and the amount of information that can be swapped on the internet. Yet it is still a tiny percentage of the total, with the rest held by investment funds, banks and hedge funds.
Get the punters onboard
Many CEOs may think private investors are not worth the hassle: you can’t talk to them one on one, you can’t ask them to stump up more cash when you want to launch a big takeover deal, and they have a habit of demanding dividends when you would rather spend the money on something more interesting. Yet they are also typically far more loyal, and will support a business through good times and bad – certainly far more so than whichever hedge fund would own the shares instead – and they are usually far less bothered by quarterly performance or benchmarking a company against its peers: so long as the CEO has a strategy they believe in, and the business makes profits, they will back it.
Secondly, freebies help turn customers into shareholders. For a freebie to work, it has to be related to the actual business. Free popcorn for a cinema chain is a great example. So is a free beer for a brewer. An airline could give away a travel voucher, as could a hotel group; a restaurant chain could offer a free pizza, or wine with a meal; and a retailer can offer a discount. If the deal is a good one, then it will encourage the most enthusiastic customers to buy shares in the business. And they are, after all, the people who understand the business best and are more likely to come back again and again. The freebie might cost a little money, but overall it might well boost sales.
The best companies are a community of stakeholders, including managers, staff, suppliers, customers and shareholders. They should all be enthusiastic about the product and want it to succeed. The greater the common interest between all those groups, the better it will do in the long run. Special offers for private shareholders might have gone out of fashion, but they are a great way of making that happen.
-
Top 10 areas with the biggest inheritance tax bills – is your town on the list?People in some of the wealthiest parts of London pay the most inheritance tax – but there are a few areas outside the capital where big bills are paid when a loved one dies
-
Inheritance tax reform ‘largely protects family farms’ – what are the alternatives?Independent analysis of the government’s inheritance tax reforms has found eight out of 10 farming estates will be able to pay their IHT bill without having to sell off parts of the farm
-
8 of the best properties for sale with shooting estatesThe best properties for sale with shooting estates – from an estate in a designated Dark Sky area in Ayrshire, Scotland, to a hunting estate in Tuscany with a wild boar, mouflon, deer and hare shoot
-
The most likely outcome of the AI boom is a big fallOpinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
What we can learn from Britain’s "Dashing Dozen" stocksStocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?
-
The rise of Robin Zeng: China’s billionaire battery kingRobin Zeng, a pioneer in EV batteries, is vying with Li Ka-shing for the title of Hong Kong’s richest person. He is typical of a new kind of tycoon in China
-
Europe’s forgotten equities offer value, growth and strong cash flowsOpinion Jonathon Regis, co-portfolio manager, Developed Markets UCITS Strategy, Lansdowne Partners, highlights forgotten equities he'd put his money in
-
How retail investors can gain exposure to Lloyd’s of LondonIt’s hard for retail investors to get in on the action at Lloyd’s of London. Here are some of the ways to gain exposure
-
The flaw in Terry Smith’s strategy at FundsmithOpinion Fundsmith has invested in some excellent companies, but it has struggled to decide when to sell, says Max King
-
The goal of business is not profit, but virtueOpinion Serve your customers well, and the profits will follow, according to a new book. It rarely works the other way around, says Stuart Watkins
