Check out this article I got today via email...
I want to read the rest, but don't have the link yet..
Pretty cool.( although, i didn't play by these rules, with OGPS..somebody set me up there...he had been thinking about this all day..he had his gunss loaded!! LOL)
FM
>TALKING WITH MANAGEMENT>
>Informed investing requires careful study of company financial data, an
>understanding of industry trends and market psychology, a little luck,
>enormous patience, independent thinking, and helpful contacts. While mostof
>us would agree with this list, the definition of "helpful contacts" remains
>elusive. As a result, newspaper or magazine articles, hot tips, andfriends'
>recommendations account for more buy and sell decisions than meticulous
>research. We spend months seeking out data to determine the best $500
>washing machine, but are willing to invest $5000 on a "can't lose"
>speculation overheard by a "helpful contact" at a cocktail party.>
>The most useful contacts are typically our most knowledgeable
>investors--company management. These insiders have more information about
>their companies than any outside analyst or annual report can possibly
>convey. But they are also among the most under-utilized sources of
>information by individual investors. Therefore it seems worth discussing
>some of the fundamental aspects of talking with management. Contrary to
>popular belief, while you may have trouble contacting the CEO at AT&T,small
>cap companies' officers are usually quite willing to talk with you, and it
>is often possible, over time, to develop a personal relationship with
>management.>>>Do Your Homework>
>Part of management's job involves talking with investors. But company
>executives are just as busy as you and I; experience suggests that their
>receptivity to your calls is contingent on several factors. First, theywant
>to feel that you've done your homework and that you know something about
>their company. That means that you've read the latest 10Q or 10K, annual
>report and proxy statement, that you are familiar with their product or
>service, and aware of their latest press releases.>>
>Formulate Specific Questions>
>Second, they appreciate hearing that you have specific questions which have
>been generated by your interest in the company (e.g. "I noticed in yourlast
>quarterly report that inventories are significantly higher than last year,
>and I couldn't figure out why; could you help me out with that?" Initially,
>specific questions help management feel more comfortable talking with you
>than vague inquiries such as "Where do you think the stock price isheaded?"
>or "How are things going this year?" Once the specifics are answered and
>management has a better sense of you, it's much easier for them to add some
>general positives or negatives about the company.>>>Genuine Interest>
>Third, management is much more receptive if you are truly interested in
>their company rather than if you are calling to challenge every statementin
>their latest Annual Report. An adversarial stance will usually inhibit a
>relatively free discussion. Your general approach to contact withmanagement
>should be one of an inquisitive investor who is interested in buying partof
>the business. Try to experience the conversation from the management's
>vantagepoint. For example, in this day and age of litigious shareholders,
>management will be reticent to make any specific predictions or statements
>that could lead to a class action lawsuit that would disrupt thefunctioning
>of the company. Expect some hesitation at first, but don't be put off byit.>>
>If Management Won't Talk With You, Don't Invest>
>Any management representative not willing to talk with you or respond to
>your questions should raise an immediate warning flag. If the front line
>perceives shareholders as threatening, you can be sure that increasing
>shareholder value is not a priority. I once was very interested in
>recommending a small cap company for my Newsletter and telephonedmanagement
>with my questions. When Investor Relations refused to answer the inquiries,
>I asked to be put through to the CFO, who promptly told me that he did not
>make a habit of discussing his company's prospects with shareholders.
>Needless to say, I did not recommend the stock, which in the next two
>months, dropped 90%! Refusal of any public company to talk with its
>shareholders is always an ominous sign.>>>Where To Begin>
>Whenever you're considering investing in a micro-cap company, remember that
>patience is always worth more than money. If XYZ Corporation is a good
>investment this week, it will be equally suitable next week. Before
>committing any money, call the company and ask for Investor Relations. Ask
>them to send you a complete financial package and to add your name to their
>mailing list. This request assures that you will receive all quarterly and
>annual reports and press releases in a timely fashion.>
>This call initiates the first part of your assessment. How do they respond
>to your call? Do they send you the material in a timely fashion (twoweeks)?
>If not, be wary and ask for an explanation. While a courteous and prompt
>response does not insure anything, a company that does not execute a simple
>request for information may well have difficulty executing major plans for
>growth and expansion.>
>After you have read the financial packet, you may want to do some research
>into trends within the industry in which the company operates. It is also
>helpful to become familiar with the company's largest customers and
>competitors; and don't hesitate to call either to elicit their reactions to
>your prospective investment.>>>QUESTIONS FOR MANAGEMENT:>
>As a result of reading the 10 Q's and 10 K's (the reports which the company
>is required to submit to the SEC), you should be able to formulate a few
>specific questions for management to answer. You are now in a position to
>call the company. Ask to speak with the CFO or CEO. Tell them that you area
>prospective investor who is very interested in the company, have read their
>financial package, and have some questions which you would like help in
>answering. In terms of your assessment, you are listening here not only for
>the answers to your questions, but more importantly, for the quality of
>their response to your interest--whether they seem to welcome curiosity
>about their products, ways of doing business, etc., and how willing theyare
>to share their thoughts with you.>>>Is Management a Good Technician?>
>After your specific questions are answered (why the slow down in sales, or
>the increase in operating expenses, or the rise in inventories, etc), it is
>helpful to ask a series of more general questions. In the annual report,
>there is always a letter to shareholders outlining future directions of the
>company. While most investors consider this glossy page to be nothing more
>than fluff, it allows you to question management about their written future
>directions. Have they completed whatever projects they outlined for the
>following year? If not, why not? You are listening here for whether
>management can follow through on their promises to shareholders. In other
>words, is management a good technician? Can they follow through with
>promised goals that will enhance growth?>>>Management Interaction>
>I usually like to ask whomever I'm speaking with to tell me briefly about
>their top management. Here I'm not so interested in their credentials (you
>can find this in the proxy statement), rather, I'm interested in any recent
>changes in management (and why) and the quality of the description--the
>feeling that management is working as a team, that this is "our" companynot
>"my" company, that each member of the team brings a particular strength.>
>Recently I was at a meeting of a well-known company in which the CEO was
>proudly telling the audience how well top management worked as a team.
>However, whenever the CFO began to express his opinion, the CEO immediately
>cut him off and presented his own answer to an analyst's questions. It was
>clear that despite the positive rhetoric this company's top management did
>not work as a team and needed to be judged by the CEO's capabilities alone.>>
>Overvaluation of the Company>
>Every executive should be optimistic about his or her company's prospects.
>In fact, in answer to my questions, I expect to hear a slightover-valuation
>of what can be accomplished in the next few years. In the same way that a
>psychologically healthy parent tends to slightly overvalue his or her
>children's strengths, management will over emphasize the company strengths,
>but without being grandiose about the possibilities. This overvaluation
>should be tempered by the capacity for a realistic assessment of what might
>prevent the company from achieving its goals as delineated in the annual
>report.>>>Commitment to Shareholder Value>
>I'm always interested in knowing how much of the company is owned by
>management. While this information is also in the proxy statement, Iusually
>ask anyway because it leads easily to follow up questions such as whether
>there has been recent insider buying or selling and the reasons for each.>
>While most management won't discuss their own earnings projections, they
>will usually tell you if they agree with the "Street" estimate, which you
>should know before you call (Street estimates can be obtained from Zack'sor
>I.B.E.S or your broker can locate the figure quickly for you). Where no
>Street estimates exist, as with many micro-cap companies, management should
>be able to tell you their expectations for top line growth in percentage
>terms (e.g. "I expect revenues to grow at 25% per year for the next two
>years."). I am less interested in the quantitative answer to the earnings
>question than in listening for some indication that management is truly
>committed to increasing shareholder value. A comment such as "we don't
>comment on earnings projections, but I think our shareholders will be
>pleased" conveys that management has the owners on one's mind. I also feel
>more comfortable if the CEO is familiar with the numbers rather than
>referring you to the CFO. In a similar vein I'm more comfortable with a CFO
>who has a grasp of the general business plan of the company in addition to
>an understanding of the numbers.>>>Competition>
>Management should be able to discuss both the specific companies with whom
>they compete as well as the competitive advantages of their own products or
>services in a manner that gives you a sense of confidence and assurance.>>
>Encouraging Management's Thoughts>
>Toward the end of the conversation (try to keep it under 15 minutes), I
>usually suggest that I've been asking a lot of questions, and wonder if
>there is anything I should have asked that I didn't as a potentialinvestor.
>I invite management to comment on any positives or negatives that I might
>not have asked about. I encourage him or her to tell me where they see the
>company in five years and the specifics of what could prevent the company
>from achieving its goals over a five year period. What I look for here is
>not so much the content as the general emotional tone in which the Company
>is discussed. "Business looks promising" can convey very different meanings
>depending on whether an almost giddy tone or a depressed one accompaniesit.>
>As you talk with management, I think you'll develop your own set of
>questions and clues to help you read between the lines, but these
>suggestions should help you get started. Try to remember that mostquestions
>about the financial prospects of the company can be answered by reading the
>financial statements. What you are really interested in is evaluating
>management's ability to execute a business plan.> |
