Listen

One of the most important aspects in the process of researching a company is the corporate interview. It can be a one-on-one meeting with a company president or with several members of the team including the president, vp finance, etc. It can be a face-to-face meeting in an office boardroom, a telephone conference call or via a computer/internet presentation.

Well, before such an encounter we prepare a whole list of questions relating to the public company’s present and future prospects, finances, competition, regulation, taxes, non-essential assets, etc. We arrive at the meeting or presentation with a pad of paper, pen and calculator as we attempt to connect the dots of the mystery of whether or not we should purchase a particular company’s common shares.

Ultimately, our investment decision will rely upon a number of important factors of the interview such as a concise company plan of action which will give us a sense of comfort that the company is in good shape with a positive outlook. But more importantly, we want to acquire a confidence with management, its operational style and its ability to weather the day-to-day issues of running a public corporation.

Our principal task to this whole interview process is to listen. We must be attentive. For instance, we will ask questions, prod the executives in certain directions for us to better understand the overall business and let management offer whatever information they may wish to give us. Again, the challenge to us as analysts is to listen, not interrupt and let management speak their peace. This is all-important; however, it is not an easy task since most analysts have a natural tendency to plow ahead with a rapid fire list of questions. Often, they do not allow management the full opportunity to explain in greater detail their short and longer term corporate plan of action. More often than not, management may offer a simple piece of the investment puzzle which will be key to the decision whether or not to invest.

The research responsibility of listening, I believe, is an “art”. It is an invaluable skill acquired by battle-hardened investor experience. The importance of listening to management, in my opinion, is paramount to the portfolio manager’s ultimate investment decision. In short, it is a simple yet key element to investment success.

Irwin A. Michael, CFA