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Should value investors meet company managers?

We were surprised to learn at a recent conference that some value managers like to go and visit the people running businesses in which they invest. Here is why we prefer not to

07/06/2018

Roberta Barr

Roberta Barr

Research Analyst, Equity Value

Value investing, as we have observed before in Beyond belief, is a broad church whose ‘congregation’ can follow a variety of approaches while still adhering to its fundamental principles.

And, if ever we needed reminding of that fact, it is brought home to us around this time every year when The Value Perspective team attends the London Value Investor Conference.

Even so, we were slightly surprised to learn at this year’s conference – the seventh annual event – that not all value investors share our reluctance to meet people at the top of a business.

Is meeting management worthwhile?

As we have written elsewhere, these opportunities to grill company management teams – to look them square in the eye and read their body language – are a huge part of the investment process of some professional investors.

But not as a rule value investors, we felt, as we looked to our own discipline of only meeting company management in order to discuss very specific issues – usually matters of corporate governance.

Still, since more than one conference speaker this year went out of their way to expound the benefits of visiting businesses and talking to their managers, we thought we should briefly recap why we do not.

All numbers should already be available

For one thing, here on The Value Perspective, we are much more interested in a business’s numbers than any ‘story’ its managers add into the mix.

And all the relevant numbers should already be in the public domain by way of the company’s annual reports and accounts and other financial statements.

Indeed, if a company manager ever told anyone any extra facts about their business in a meeting, they would be breaking the law.

It could cloud objectivity

What is more, whether they meant to or not, any story a company’s managers did tell us about their business could end up clouding the objective case for investment.

As we have discussed in articles such as Once upon a time, buying into stories can lead to unconscious bias on the part of investors – the so-called ‘narrative fallacy’ – making it much harder to appraise the associated risks and rewards of a business in a rational way.

As we have concluded a previous article on this subject: “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.”

Author

Roberta Barr

Roberta Barr

Research Analyst, Equity Value

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