How much emphasis should we put on our interactions with the management team of public companies when assessing potential investments?
In his book [The Education Of A Value Investor], Guy spier shared his perspective on interacting with management teams. He wrote:
” The trouble is, senior managers—particularly CEOs—tend to be highly skilled salespeople. No matter how their business is performing, they have a gift for making the listener feel optimistic about the company’s prospects…” …”But this gift of the gab doesn’t necessarily make them a dependable source of information.”
Guy accurately articulated my perspective on the matter. However, years later he renounced this view and recognized that there is value in conversing with management teams of public companies before making investments.
When interacting with management teams, I aim to have all my questions answered in advance by reviewing the annual reports. Typically, I only seek discussions with executives when I need clarification on certain matters, or when I want to understand the CEOs & CFOs perspective of the industry and future strategic plans for the company. This usually occurs after I’ve already purchased shares in the company. Hence, I don’t rely on them as a source of information in making investment decisions.
The psychological aspect is also important to consider. If we are naturally more agreeable and trusting, it makes us more susceptible to being charmed and mesmerized by the executive. Just as we don’t ask a barber if we need a haircut, there’s no need to rely too much on information from management teams. We want to avoid having our judgement clouded.
The Exception
However, there are some exceptions. Could Tesla exist without Elon Musk? Would Apple still be Apple without Steve Jobs? Or would BYD be the same without Wang Chuanfu? We can’t always understand how exceptional a CEO is by reading the annual reports. In such instances, speaking with the CEO in order to understand her / his vision is as important as analyzing the past performance of the business.
