Why you should attend annual meetings and talk to management

Investing can be as social, or as anti-social as one wants.  There are many investors who never speak to another soul and produce great results.  And then there are some investors who are talking to others so much it's a wonder they find time to research anything.  That's the beauty of investing, there is no one way to do anything, but a multitude of ways that can all lead to the same result; profits.  Investor opinion on talking to management ranges from believing it's vital, to a distraction, to actively decrying it.  I think there's a time and a place to talk to the management of companies we own, and even attend their annual meetings when possible.

I attended the annual meeting for a holding of mine this past week.  The company is local and I've owned shares for about three years, but I hadn't been able to attend until recently.  This isn't a large holding, I own about $150 worth (a placeholder amount), and my wife $1500.  The actual dollar amounts are important because many investors would consider it a waste of time to do anything beyond read a 10-K for a $1650 holding.

The annual meeting was held at the company's single location, in a small conference room above their offices.  I knew I was in the right room when I saw a box of cookies and coffee, staple fair for shareholders.  There were two rows of seats, maybe 20  total which were placed there to fill the room.  The company didn't really expect more than a person or two to attend.  The attendees were myself, the wife of the previous CEO, and the granddaughter of the company's founder.  Management was practically falling all over each other to introduce themselves to me, a new face.  The other two shareholders had been attending the meetings for decades.

The meeting itself was short, a few prepared remarks by management discussing the past years results.  I asked a flurry of questions about the business and their finances and then the meeting adjourned.  That's when the value of attending really began.  In a small setting management will usually stick around afterwards and answer questions.  The formal meeting lasted maybe 15 minutes at the most, but I talked with management and various Board members for another 45m.

For most investors board members are simply names on a proxy.  We don't know much about them, what they do, or how they're related to the company beyond the small one paragraph blurb the company provides.  The blurbs provided in proxies are near worthless.  It doesn't matter to me that a director was valedictorian of their college class in 1952, or that they hold awards in unrelated industries.  Investors have even less insight on what board members actually do.  We are at most presented with a detail of how many meetings they attended.  Even worse is that some directors don't even attend the board meetings, they just dial into a conference call.

I've been surprised, both positively and negatively at how much, or how little directors know when I've attended annual meetings.  Shareholders have the opportunity to question not just the management team, but the board, who run the company for them.  Some directors appear to be asleep at the switch, others actively engaged.  When a director defers all questions to management it's a red flag for me.  Likewise when a director tells me all about the product line, the evolution of their customers and breaks down who buys what, and how it's changed I'm encouraged.

Another advantage is often the largest shareholders attend the annual meeting.  For this company that was the case, I was able to find out details on shareholder purchases and sales that would never be known otherwise.

Annual reports, newspaper articles, and other written material can give a lot of information about a company.  Sometimes it's easiest to get a question answered by just picking up the phone, or attending the annual meeting.  The company whose meeting I attended has a pension plan that I'd been concerned about.  Their annual report had all of the standard pension disclosures which was helpful, but I still had concerns.  Two simple clarifying questions to the CFO eliminated any concerns I formerly had about the pension.  Without speaking I could have never had those questions answered, they just didn't exist in the filings.

I also spent a considerable time talking with the company's COO who walked me through various aspects to the business.  I wrote a post a few weeks ago about how even when we think we're experts on an industry we're really novices; my conversation confirmed that.  I was given an education on their that's common knowledge to employees and others in the industry, but can't be found easily online or in books.

Maybe this post has you thinking I've fallen in with the group of investors who believe talking to management is a requirement for any investment.  I don't think it is.  But I think we should also take advantage of every opportunity to attend annual meetings when they're close or convenient.  I don't think phoning management to ask simple clarifying questions or ask about the business is a terrible thing either.  As I mentioned above this is a small investment for us, so why did I attend?  I like the experience of going to these things, but I also received a great education in an hour that I couldn't have ever received by just reading.  Supposedly all knowledge is cumulative, and what was learned here is clearly applicable for other investments.  I also found out the company is now paying a 10% dividend, something they did without any announcement that could only be discovered by talking to the company.

10 comments:

  1. U know you went for the free coffee, Nate

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    1. I won't lie, I always look forward to the food spread. The cookies were excellent, they were oversized and with only three shareholders there were about a dozen left over. My boys appreciated me going to the meeting as they munched on an M&M cookie at lunch.

      I was expecting what I term "church coffee", a black liquid with zero taste served out of giant thermos containers and church picnic type events. Surprisingly their coffee was good, and this is coming from someone who grinds their own daily.

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  2. I attended the TIV annual meetings and enjoyed the tour of the oilfields. A bus trip with sandwiches and a person who knew every oil pump along the way and how much oil was being pumped. The tri vally oil field was interesting up close looking at the rigs was fun. I got my mom now 93yr and she enjoyed the trip and talking to everybody. Some times i would have to remind her that the guy was trying to explain to the bus load of people about oil. Tri vally went out of business.

    I went to a stockholders meeting in the Ronald Reagan Library. The company made these gas generators that produced electricity They have about 12 or so at the library. They used the exhaust to run the air conditioning system. very cleaver. I enjoyed the tour of the the library if you can make it there is a fee to walk around but we were stockholders and went for free.

    There is a company Save the world air. ZERO that passes oil usually very hard like asphalt through an electrical field and vola it is slick stuff. the use they were putting this to was for pipelines. TRP trans Canada has recently installed as a test this big item. Pre-made elsewhere so it can be bolted together. It was very informative, I met the engineers. I had read the articles about how it was a scam. no big company knew or would have anything to do with them. This guy said it was just a scam or that was his take on this company. I was there talked to real people watched the news item as the pieces were made and sent to be assembled. and his comments were still that it wont work it is a scam. I was there and talked not to the Big guy but to the engineers. I found that stockholder meeting very interesting. useful.

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  3. Hey, Nate I like to know they company's name its paying a 10% dividend. Kinda want to know the name if you don't mind.

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  4. Did you have to travel to get there? How far would you say is out of your range (obviously depends on many factors, just curious to hear your thoughts)
    While we are on the subject, I attended the Needham conferance in NY about a month ago- was actually pretty helpful- I met some people that I think will be good to connect to down the road.

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    1. It took me about 25m to travel there. The office is probably 15 miles away.

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  5. FYI: If they are providing information to you about a 10% dividend, and not to the public, they are in violation of regulation FD (fair disclosure) and you are probably restricted from trading their stock until the information becomes publicly available. It doesn't matter how or why you got the inside information, it's still inside information and treated as such.

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  6. The dividend had already been paid to shareholders. There was nothing material or non-public. I'd love to trade this stock, it's not possible. My shares are essentially equal to ownership in a private company.

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  7. Nate, once again thank you for teaching investors how to empower themselves! This is a must-do experience for any investor who happens to live local to a company.

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  8. Hi Nate, sorry if i missed it, but how did the story with Seahawk bankrupcy end? Pride got their $50+ mn claim settled, didn't they? What was the eventual payout to Seahawk equity holders (if you remember)? Thanks!

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