Much movement on the share registry of a corporation is commonly interpreted as representing instability and is therefore seen as negative. Boards and CEOs therefore attempt to “quieten” their registries, using a range of techniques including, promotion, advertising, communication to shareholders, communication to analysts, promise of bigger benefits, etc..

Although volatile movement on a registry may be unfavourable, it should by no means automatically suggest that all movement on a registry is negative and that stability of the registry, per se, should be aspired to. Except in a market in free-fall, every transaction has a buyer and a seller. Where an existing shareholder is selling because of the corporation’s inability to provide a high probability of satisfaction, then it is likely that the shareholder may discount the sale price asked in order to cut “losses” and reposition in another registry that offers greater probability of satisfaction. If many of the company’s shareholders feel the same way, then prices will fall.

Conversely, an investor wishing to gain entry into a registry or wishing to buy a greater holding will see additional value in that stock over the purchase price. If there is no such perception of “extra” value, then there is not much point in the purchase. When there is “extra” value perceived by the intending investor, and when many investors perceive such “extra” value, then there is a likelihood that prices will be pushed up to a level that equates to the perception of value.

This is no more than normal supply and demand mechanics at work. Therefore, when existing shareholders wish to sell their holdings due to a negative perception of the future, then prices will tend to be depressed. When external shareholders want to enter the registry, then they tend to push prices up. Depressed share price causes market capitalisation of that company to be depressed while rising prices enhances market capitalisation.

Companies therefore should attempt to minimise all churn on their registry caused by disenfranchised shareholders because this will constrain share price and market capitalisation. The methods used by companies to achieve this might vary, but can be summarised as methods that enhance shareholder satisfaction and positive perceptions of future performance.

On the other hand, all companies should “chase” positive churn, i.e. registry churn caused by investors wishing to enter the registry. Particularly when fewer existing shareholders are prepared to exit the registry. This forces share price up which is to the advantage of all existing shareholders. One is not able therefore, to deduce merely from the existence of churn, whether the instability is “positive” or “negative”. One conclusion is clear however, positive churn is very much to the advantage of existing shareholders.