This is article III, in a three part series. To see article I click click here, for article II click here.
To Conclude, I think it is good to speak to management, while being careful about what they say. That is understatement, you should be extremely cautious about what management tells you, since they are salespeople, but you can learn some valuable things about the product (in this case the stock) from salespeople. To explain this middle approach, it is good to look at both the perspective of the management and the perspective of the investor.
As an investor, it is important to do extensive research before making any major investments. You have to understand the drivers of a business before you decide that you are willing to invest.
That is why speaking to management is a great thing; they might be able to point you in certain directions about some new issues that you can investigate yourself. Or, they could even tell you what the current operations are like, what is good, what is bad (although they will likely spin it as best as possible to make it sound good), and what can be fixed or even improved. Overall, they are nothing more than living and breathing financial statements. They tell you exactly what they know, and you must sift through the information to decide what decisions you can make based upon their information.
However, you also need to make sure that you use their information wisely. Unlike financial statements (which are objective and contain facts and figures), managers have their own agenda or viewpoints on specific issues, or the entire operation. This is where things can get tricky. For the most part you should at least be able to take their information and use it as a starting point for research. Do not listen to what they think because it could literally be anywhere from 100% accurate to 100% lies.
There are no guarantees that they will tell you the truth. However, it should be noted that what they do talk about could still be a treasure. They will tell you things that are most likely on their minds, and those things are probably the most important in terms of what is currently affecting the company. You will then be able to do the research yourself on those issues and make a decision that is both informed and unbiased.
Another strong point that can be made about speaking with management is that despite a management having the best interests for the company, they could still completely not trust you. In their opinion they need to do everything possible to be loyal to the company and keep their operation running efficiently. Then, if they see an outsider or even a shareholder coming in and speaking with them, why would they give you any information that indicates anything is wrong? First off, that would be like turning themselves in and shouting out the bad information to the very top of the chain. Second, it might seem silly, but people in IR (investor relations) for example, would fear saying the wrong thing to you because it could come back and bite them in the behind; if you are going to get information, then it might as well come from their bosses and the president / executive team. This is not always easy, especially with larger companies. It would be very hard to get Prem Watsa, Warren Buffett, or Steve Jobs on the phone to talk about Fairfax, Berkshire Hathaway or Apple.
Finally, just because you are trying to find out more about the company to make it better, it does not mean that you have loyalty to this company. You are looking after your own interests and not the companies. Many analysts who are interested in a company call management of a competitor, even though they have no interest in the competitor’s stock, merely to get as much information about the industry as people. Because they are human and need to protect their own job and their workers as well, why in the world would they tell you anything that could come back and hurt them? Truth be told, you will probably run into a lot more people in management who are pretty tight lipped overall because they just do not want to risk getting in trouble or even losing their job. Also, the real exciting information i.e. about a possibly buy-out for example they cannot legally tell you. Therefore, you will only get the generic answers to the questions they deal with all the time.
Therefore, while it might beneficial for you to speak with them and at least learn about some of the potential issues facing the company, you should not expect to get too much information without digging pretty deeply and sifting through the unimportant stuff. But, if you do get some easy access to some top information, you might want to double check your sources to see if it is actually something that you can use. Even while speaking to people at the top of the corporate ladder, remember again that they are salespeople.
Disclosure: No position in Berkshire Hathaway or Fairfax
http://www.valuewalk.com/
To Conclude, I think it is good to speak to management, while being careful about what they say. That is understatement, you should be extremely cautious about what management tells you, since they are salespeople, but you can learn some valuable things about the product (in this case the stock) from salespeople. To explain this middle approach, it is good to look at both the perspective of the management and the perspective of the investor.
As an investor, it is important to do extensive research before making any major investments. You have to understand the drivers of a business before you decide that you are willing to invest.
That is why speaking to management is a great thing; they might be able to point you in certain directions about some new issues that you can investigate yourself. Or, they could even tell you what the current operations are like, what is good, what is bad (although they will likely spin it as best as possible to make it sound good), and what can be fixed or even improved. Overall, they are nothing more than living and breathing financial statements. They tell you exactly what they know, and you must sift through the information to decide what decisions you can make based upon their information.
However, you also need to make sure that you use their information wisely. Unlike financial statements (which are objective and contain facts and figures), managers have their own agenda or viewpoints on specific issues, or the entire operation. This is where things can get tricky. For the most part you should at least be able to take their information and use it as a starting point for research. Do not listen to what they think because it could literally be anywhere from 100% accurate to 100% lies.
There are no guarantees that they will tell you the truth. However, it should be noted that what they do talk about could still be a treasure. They will tell you things that are most likely on their minds, and those things are probably the most important in terms of what is currently affecting the company. You will then be able to do the research yourself on those issues and make a decision that is both informed and unbiased.
Another strong point that can be made about speaking with management is that despite a management having the best interests for the company, they could still completely not trust you. In their opinion they need to do everything possible to be loyal to the company and keep their operation running efficiently. Then, if they see an outsider or even a shareholder coming in and speaking with them, why would they give you any information that indicates anything is wrong? First off, that would be like turning themselves in and shouting out the bad information to the very top of the chain. Second, it might seem silly, but people in IR (investor relations) for example, would fear saying the wrong thing to you because it could come back and bite them in the behind; if you are going to get information, then it might as well come from their bosses and the president / executive team. This is not always easy, especially with larger companies. It would be very hard to get Prem Watsa, Warren Buffett, or Steve Jobs on the phone to talk about Fairfax, Berkshire Hathaway or Apple.
Finally, just because you are trying to find out more about the company to make it better, it does not mean that you have loyalty to this company. You are looking after your own interests and not the companies. Many analysts who are interested in a company call management of a competitor, even though they have no interest in the competitor’s stock, merely to get as much information about the industry as people. Because they are human and need to protect their own job and their workers as well, why in the world would they tell you anything that could come back and hurt them? Truth be told, you will probably run into a lot more people in management who are pretty tight lipped overall because they just do not want to risk getting in trouble or even losing their job. Also, the real exciting information i.e. about a possibly buy-out for example they cannot legally tell you. Therefore, you will only get the generic answers to the questions they deal with all the time.
Therefore, while it might beneficial for you to speak with them and at least learn about some of the potential issues facing the company, you should not expect to get too much information without digging pretty deeply and sifting through the unimportant stuff. But, if you do get some easy access to some top information, you might want to double check your sources to see if it is actually something that you can use. Even while speaking to people at the top of the corporate ladder, remember again that they are salespeople.
Disclosure: No position in Berkshire Hathaway or Fairfax
http://www.valuewalk.com/
