A lot of professional investors set great store by meeting the people at the top of the businesses in which they own shares – but is this sanity or merely vanity?
Many professional investors set great store by meeting the people at the top of the businesses in which they own shares. These opportunities to grill company management teams – to look them square in the eye and read their body language – are, they argue, a huge part of their investment process. Here on The Value Perspective, however, they are not a huge part of ours. This is why.
The first thing to note is that these meetings are more about emotion than objectivity. After all, anything company managers can tell you about their business is already in the public domain – freely available in the annual report and accounts documents. To put it another way, if the managers told you any extra facts about their business, they would be breaking the law.
Before a company meeting, any professional investor worth their salt will have read the most recent results published by the business and they may well have participated in the associated webcast or teleconference – or at least read the transcript. All of that will have given them an impression of how the company works and how it is doing – a subconscious impression, perhaps, but that is part and parcel of being human.
Confirmation bias
Having formed an impression, positive or negative, the investor is then very likely – again subconsciously – to find a reason in the meeting to confirm it. If the majority of company meetings serve no greater purpose than to help confirm the suspicions and prejudices built up before they even began, it does rather call the point of them into question.
Body language
We aren’t convinced by the argument that judging whether company management seems confident or nervous can be a key benefit of a meeting. The notion you might be able to work out how a share price is going to move over the next 12 months from the body language of the chief executive or the finance director is, we would argue, at best optimistic, at worst deluded.
The final reason for our scepticism is that, between the seven of us here on The Value Perspective, we have met with thousands of management teams over the years – and how often do you suppose they confided to us the business was terrible or its shares were dramatically overvalued? That’s right – zero. And how often did that actually turn out to be the case? Right again – a lot more than zero.
Can a management meeting ever be useful?
So can a management meeting ever be useful? For sure – when to have one would be in the best interests of our clients. That would be when we think a company is about to make a bad choice – for example, taking on too much debt or pushing ahead with a deal that could end up destroying value. At that point, we would look to meet with the company, make it clear we do not support its course of action and offer our own views.
There is nothing wrong with management meetings in themselves – either to offer that sort of guidance or perhaps to learn more about the business and ensure it is being run sensibly. Where professional investors risk coming unstuck, however, is forgetting that while it may be a fact-finding session for them, it is a full-on sales opportunity for the people across the table. That is why we politely decline 90% of company meetings and leave those at the top of the businesses in which we own shares to get on with their real jobs – management.
Published by Nick Kirrage. Fund Manager, Equity Value, Schroders