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.