Kicking the tires of your stocks (aka “due diligence”)

Annual meetings for shareholders are one part of my investment process that can add to the investment thesis: is this a good investment, why or why not?  They can also be quite fun (such as Warren Buffet’s shindig for Berkshire Hathaway.)  While most meetings are pretty straightforward, the shareholder meeting provides nuances beyond the numbers.  For the numbers, you can listen to quarterly earnings calls or webcasts, read financial statements and discuss with your advisor whether a security complements your portfolio.

I recently attended two meetings that contrasted sharply.

Company “A” – a large financial conglomerate

This meeting was held away from corporate headquarters at a midtown hotel.  Attending required walking past chanting demonstrators and passing through metal detectors.  Once in the meeting, the gathering was noteworthy for the steady stream of anxiety, dissatisfaction, vitriol and complaint expressed by shareholders – including some former employees!  Primarily these individuals bemoaned their sizable investment losses, a reverse split in shares (perhaps improving the “optics” but not much else), low dividend payout, and all around poor performance of management.

The board of directors sat to the side and barely acknowledged the sizable audience.  Management sounded bland and defensive.  After listening to ninety minutes of tragic stories about the destruction of shareholder value, I left.  It was too depressing.

My verdict: Get rid of my ten shares (formerly a hundred!) and be thankful that this speculative investment, purchased during the global financial crisis, was at least worth the purchase price rather than zero.

Company “B” – a small cap specialty chemical company

This meeting was remarkable for its pleasantness.  Held at the company headquarters, shareholders received an attractive handwritten nametag.  Employees were gracious and cheerful.  At the beginning of the meeting, each board director stood, smiled and mouthed hello.  The senior managers of different business units also stood and appeared engaged and pleasant.

The CEO was relaxed as he reviewed the outstanding performance of the company and its stock in 2012.  He was also happy to indicate a dividend increase.  The excellent management, profitability, stock performance and dividend increase spoke for themselves.  When shareholders were invited to ask questions, not one hand arose.  This was a satisfied bunch of owners!

My verdict – listen to upcoming earnings call, keep the stock and add to my position!

It is not always possible to go to shareholder meetings.  Investors can also look at company websites and listen to a quarterly earnings call (or biannual for foreign companies) announced well in advance on the investor tab of the site.  The important point is to be familiar with your investments, and to pay attention to the details.