Back to Drew's Views
December 11, 2019
Previous
Next

Are Company Visits Good or Bad?

Stock Picking

Our most profitable investment, ever, was probably the combined result of a lotta luck, some skill, and hard work.  We indeed did an extensive fundamental dive, developed a compelling roadmap that drove our fundamental expectations, and we had a reasonable gauge on the behavioural mistakes that were preventing Mr. Market from seeing what we saw.

But to be clear - to the extent that our gains were driven somewhat by skill and hard work - we did not have an informational “edge”.  Our edge, I think, is that we knew which public information to ignore, and which to spend all our time analysing.  We also had had a good sense that Mr Market wasn’t focused on the same information, or – if he was – he wasn’t drawing the same conclusions.  That was our differentiation.  That was our delta.  Ultimately, that is what drove our excess returns.

So, over a five year period of owning this stock, guess how many times we met with the CEO?  

Three

Sure, we also met with the CFO a few times, and had a dozen or so calls with the IR, but we got everything we needed from the CEO in those three visits.  Moreover, we didn’t learn anything that the market hadn’t heard already, or didn’t know – we just simply observed what information was being presented to the consensus investor.  It was our job to then decide which of that information mattered, and which didn’t.

Visiting the CEO every quarter over these five years wasn’t going to make a difference.  If anything, it might have even made us less objective about the information we gathered.  It may have even given us a false sense of confidence, as hearing the same thing over again might have led to us overweighting possible outcomes simply because we’d heard the same information multiple times from the same source.

This can be particularly true in cases where the CEO is overly optimistic about the prospects of his company; and while this wasn’t the case here, we’ve seen this sort of enthusiasm countless times (and been burnt by it as well).

Yet the number of company meetings a fund manager or analyst does is often wheeled out to potential fund investors as an indicator of hard work, or access, or effort.

Company Visits.jpg
Trust me, I play golf with the CEO!

As a young analyst at a large mutual fund company, I remember some of the marketing pitches we would make.  We did a lot of company meetings.  At the time, we probably did more than anyone else in the world.  I’m not even kidding.  And we thereafter – in our meetings with consultants and investors – always highlighted the “number of company visits” as if they were some proxy for excess returns.

Guess what, they weren’t.

Sure, it sounds great in marketing meetings to say “we’ve visited with management a dozen times in the past two years and done three site visits” but that doesn’t mean anything about stock-picking.  It doesn’t mean anything about excess returns.  But it might say something about bias.

So if someone says they’ve visited management for the sixth time this year, maybe just ask them “why?”


Subscribe and sign up with your email address to receive the latest news and updates
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

FOOTNOTES

Download PDF

Topics

Stock Picking

DISCLAIMER

The views and opinions expressed in this post are those of the post’s author and do not necessarily reflect the views of Albert Bridge Capital, or its affiliates. This post has been provided solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The author makes no representations as to the accuracy or completeness of any information in this post or found by following any link in this post.

YOU MIGHT ALSO LIKE

Text Link

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.

Text Link
Text Link

Hedge Fund Investing, Turnover, and Taxes

For taxable investors, the impact of taxes on long term post-tax returns really, really matters. But how much exactly do they matter? What sort of outperformance does one of your managers need to generate to offset the penalty of not buying and holding forever?

Portfolio Management
Stock Picking
Read More
Text Link

What Stands in the Way Becomes the Way

I don’t think that Aurelius, Frost or Zweig would disagree that the road less traveled might have a little more alpha in it.

Markets
Behavioural Finance
Stock Picking
Read More
Text Link

For Investors, a "Never-Sell" Mantra is a Song for Fools

On the misleading claims of Hendrik Bessembinder about diversification; and the convenient, post-hoc, and the spurious conclusion to always buy and hold.

Asset Pricing
Markets
Portfolio Management
Stock Picking
Read More
Text Link

Why European Stocks Might Win

In an op-ed for Marketwatch, Drew explodes the myth about European companies, and reveals where he thinks the opportunities are today.

Markets
Stock Picking
Valuation
Read More
Text Link

Finding Alpha in Europe

Drew and Toby chat about narrative-driven investing, Ben Graham's voting machine, behavioral explanations for stock mispricing, and managing a concentrated portfolio of investment ideas.

Markets
Behavioural Finance
Asset Pricing
Passive vs Active
Factors
Read More
Text Link

On the Relationship Between Gasoline Prices and Vehicle Demand

As it relates to demand for pickup trucks and SUVs, gasoline prices may not matter matter as much as they used to.

Stock Picking
Read More
Navigations
HomeTeamDrew's viewsPressContact
Disclaimers
Legal & regulatoryPrivacy policyCookies policy
How to get in Touch
info@albertbridgecapital.com

Subscribe to Drew's Views

No spam. Unsubscribe anytime.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
© Albert Bridge Capital 2022
Website by SW10media.com
homeTeamdrew's viewspressCOntactDisclaimers