Posted by Robert on May 14, 2012
Oh joy. I listened to three conference calls this week, and I spoke with a CEO of a fourth company on the phone for a few minutes. To be brutally honest, I didn’t listen to the last batch of conference calls because they can be extremely dull. It’s slightly better than reading financial statements, but not much. So why do I do it?
First, it helps me connect to the companies I own. Actually, I only own a tiny percentage, but that ownership represents a relatively large portion of my net worth. I want to feel that I can trust the people who are managing this companies in an effort to be able to provide me with a steady dividend. I wouldn’t want to manage even one company, much less a dozen, so I’m happy to have professionals running the company. That doesn’t mean that management will necessarily keep my interests at the forefront, but listening to them speak gives a pretty good indication of the issues that are driving the corporate agenda.
Second, I like to know what the outlook is for the company. I read the financial statements and I try to find the good news as well as the bad news. I look for any trends or “red flags” that might be worrying. Then I listen to management’s perspective, followed by questions (usually by investment analysts). Is there good news I misunderstood? Is there bad news that I didn’t give enough weight to? Are there credible threats in the near future? But, more than anything, should any of these perspectives change my decision to own this company? During a recent call, the CEO (who is also chairman of the board) talked about long-term investments in building capacity, but failed to share a concrete strategy that was driving the investment. His lack of obvious enthusiasm probably contributed to some of the tough questions that he was asked about vision and planning.
Finally, I need to understand my investments. If I don’t understand how a company makes a profit, I won’t invest in it. If I understand that a company has a seasonal pattern to its profits, I can remain invested despite seasonally poor results. And as I listen to presentations and questions, I better understand the organization and competitive pressures that affect the company.
One of the other benefits of listening to conference calls about company results is to get a better sense of how the economy is currently functioning. Three of the four management teams seemed optimistic and sounded positive about the outlook. Only one company claimed to be struggling due to economic circumstances. It really makes me question why things are different for just one company.
Do you go to these lengths with your investments?