This is part I of a three-part series on whether investors should speak to management.
Most shareholders do not think of management as really being their employees, even though management is supposed to maximize shareholder value. Most people like to ignore management, as they hype, are vague and sometimes outright lie. It is also sometimes hard to get to speak to management, especially if you are a small individual investor interested in speaking to management at a large company. However, one of the biggest reasons to invest in a company is whether or not you may believe that the company will be successful, and through discussion with management you should be able to better understand the business.
Overall, the company itself will have day-to-day operations which are seen as a typical part of the job for almost all of the managers. Management also deals with other large decisions such as possible acquisitions, raising capital, paying out dividends and many other possibilities. If management is knowledgeable in both the daily workings of the company and the current events affecting the company alike, why wouldn’t an investor want to speak with some of the managers to get a better idea of what is going on?
While Warren Buffett does not currently speak to management, here is a quote from the Berkshire Annual meeting in 2003, in which he states he met with management in the past: “About 40 or 50 years ago, I did a lot of talking to managements. I used to go out and take a trip every now and then and drop in on maybe 15 or 20 companies. I haven’t done that for a long, long time.”
While there could be dozens of reasons why speaking to top management is a very good idea, some of the most important reasons follow the very basic principles of investing, which is to get a real understanding of what the business is. Sometimes a company that seems to have a very simple business model can be a lot more complex than it appears.
As long as you are not committing any sort of insider trading, you should definitely take the advantage to get the insiders’ take on the company, what drives their revenue, how they are better than competitors, what their plans are etc.
Some questions to keep in mind are: Are the plants (if applicable) being run correctly? How is cash being used? Does the company have too much, and if so why? How is employee morale? How do they control efficiency? Are they implementing new ideas to get better? If so, then you already know that you could have a good operation overall. If the managers sound discouraged or worried about the work force, you might want to look into this (and perhaps even bring it up with the board). Management is almost always bullish, so any time there is even a slight hint of negativity it could be a red flag.
Another factor to look into is the technology and machinery itself. Does the company continue to devote resources to R&D? Have they replaced or retooled many of the machines that they use, or are those machines just being held together by duct tape and paperclips? How about the resources for inputs? If you are working with a company that uses high-tech materials like plastics or solar panels, then shouldn’t management see the input prices decreasing? Likewise, if they are dealing with steel, coal or other commodities, what is the managerial plan to minimize costs as those prices continue to rise over time?
In addition to the specific materials and operations itself, how is logistics working in this plant? Do they have their own shipping fleet? And (whether they do or they don’t) how are they able to control the costs of transportation in a world where oil prices are extremely volatile? What will happen to their shipment of goods if the price of fuel rises 100% in the next few years? These are things that you can at least ask the managers about, which they should be able to provide straightforward answers to.
Finally, if you are simply involved as an investor, then you can also build a strong rapport with some of the top managers (if the company is small or you are a large shareholder in any size company this is especially true). If you can identify which top executives understand the issues that the company faces, as well as which managers are proactive and the most valuable to the company, then you will also know (over time) which managers should be promoted and should be given the chance to handle more responsibility. You may not get the option to promote them yourselves, but you should at least push for their advancement into roles with greater responsibility if you are given the option. You can always vote in the elections. Maybe they could serve as an officer one day?
Overall, it could be difficult to sift through all of the financials and economic information that is provided to us as investors for any given company. And this is a key point, even while reading all the financial statements for a company it is sometimes hard to understand all the numbers mean/are referring to. If you speak to investor relations, they should be able to explain any questions that you have in their company filings. But, while it might seem somewhat difficult to do, having the ability to speak with top levels of management should be just one more technique that we can actually jump inside the business and see what issues they are currently facing.
Most shareholders do not think of management as really being their employees, even though management is supposed to maximize shareholder value. Most people like to ignore management, as they hype, are vague and sometimes outright lie. It is also sometimes hard to get to speak to management, especially if you are a small individual investor interested in speaking to management at a large company. However, one of the biggest reasons to invest in a company is whether or not you may believe that the company will be successful, and through discussion with management you should be able to better understand the business.
Overall, the company itself will have day-to-day operations which are seen as a typical part of the job for almost all of the managers. Management also deals with other large decisions such as possible acquisitions, raising capital, paying out dividends and many other possibilities. If management is knowledgeable in both the daily workings of the company and the current events affecting the company alike, why wouldn’t an investor want to speak with some of the managers to get a better idea of what is going on?
While Warren Buffett does not currently speak to management, here is a quote from the Berkshire Annual meeting in 2003, in which he states he met with management in the past: “About 40 or 50 years ago, I did a lot of talking to managements. I used to go out and take a trip every now and then and drop in on maybe 15 or 20 companies. I haven’t done that for a long, long time.”
While there could be dozens of reasons why speaking to top management is a very good idea, some of the most important reasons follow the very basic principles of investing, which is to get a real understanding of what the business is. Sometimes a company that seems to have a very simple business model can be a lot more complex than it appears.
As long as you are not committing any sort of insider trading, you should definitely take the advantage to get the insiders’ take on the company, what drives their revenue, how they are better than competitors, what their plans are etc.
Some questions to keep in mind are: Are the plants (if applicable) being run correctly? How is cash being used? Does the company have too much, and if so why? How is employee morale? How do they control efficiency? Are they implementing new ideas to get better? If so, then you already know that you could have a good operation overall. If the managers sound discouraged or worried about the work force, you might want to look into this (and perhaps even bring it up with the board). Management is almost always bullish, so any time there is even a slight hint of negativity it could be a red flag.
Another factor to look into is the technology and machinery itself. Does the company continue to devote resources to R&D? Have they replaced or retooled many of the machines that they use, or are those machines just being held together by duct tape and paperclips? How about the resources for inputs? If you are working with a company that uses high-tech materials like plastics or solar panels, then shouldn’t management see the input prices decreasing? Likewise, if they are dealing with steel, coal or other commodities, what is the managerial plan to minimize costs as those prices continue to rise over time?
In addition to the specific materials and operations itself, how is logistics working in this plant? Do they have their own shipping fleet? And (whether they do or they don’t) how are they able to control the costs of transportation in a world where oil prices are extremely volatile? What will happen to their shipment of goods if the price of fuel rises 100% in the next few years? These are things that you can at least ask the managers about, which they should be able to provide straightforward answers to.
Finally, if you are simply involved as an investor, then you can also build a strong rapport with some of the top managers (if the company is small or you are a large shareholder in any size company this is especially true). If you can identify which top executives understand the issues that the company faces, as well as which managers are proactive and the most valuable to the company, then you will also know (over time) which managers should be promoted and should be given the chance to handle more responsibility. You may not get the option to promote them yourselves, but you should at least push for their advancement into roles with greater responsibility if you are given the option. You can always vote in the elections. Maybe they could serve as an officer one day?
Overall, it could be difficult to sift through all of the financials and economic information that is provided to us as investors for any given company. And this is a key point, even while reading all the financial statements for a company it is sometimes hard to understand all the numbers mean/are referring to. If you speak to investor relations, they should be able to explain any questions that you have in their company filings. But, while it might seem somewhat difficult to do, having the ability to speak with top levels of management should be just one more technique that we can actually jump inside the business and see what issues they are currently facing.
