Shane, thanks. The article you posted is a start, but I want to go a lot further than that. I have never bought a stock when I had not read the latest proxy. I am absolutely shocked at how few investors - and here I am also talking about institutional investors - read proxies. The good ones do. And individual investors should do the same.
When you are thinking of investing in a company where the integrity of management is an issue, you want to read every word of the proxy. Otherwise, I make it a 5 minute drill just to see whether a company where maybe management SHOULD be an issue. All you're looking for is red flags:
1) Who is on the board? Are more than half insiders? Is the accountant, the lawyer, or the investment banker on the board? Or do they look like genuine nonconflicted outsiders?
2) What are the executives paid? Here also you are looking for red flags. Is the CEO of a $200 million company making $3 million a year?
3) Who owns the stock? In the proxy you will find management ownership. You want that to be meaningful relative to their net worth. Options don't count. You can also find out whether a Gabelli or a Michael Price has a big bet.
4) For the companies where management integrity is an issue, often you find incredible things in the proxy, because they think nobody reads it. You'll find that the CEO owns an office building that the company leased space in. Or you'll find that the CEO's brother is on the board.
Proxies are important, and they do not take much time once you have read a few - you figure out how to find the places where the red flags are, if they're there. The value of that five or ten minutes can be huge. You will find the proxy on EDGAR as a 14B or something like that. It is filed with the 10-K annually.
If you want to practice and see what a proxy with a lot of red flags looks like, pull up Nike's or Occidental Petroleum's.
Jim |
