Skilfully interviewing company management is one of the most daunting and challenging tasks of an equity analyst or portfolio manager. Top class analysts who have learnt to do it well incorporate it as a key part of their process, and it puts them at a meaningful advantage over their peers. These analysts will come away with valuable and unique insights, while more mediocre analysts come away with the same information that everyone else already knows. In my career as a fund manager I took hundreds of these management meetings myself and sat in on hundreds more with our buy-side analysts. Here I’d like to share some of my experience as to what makes for a good meeting
- Prepare Dilligently
This is the single most important factor in determining the value of a meeting with management. Those who use management meetings to ‘get up to speed’ on a company are simply wasting the opportunity. When you meet company management you should at least know the answers to some basic questions – what business are they in, what is the revenue split, what are the key drivers of profitability and returns, and what are the major trends impacting the business? Ideally you should know a lot more than that. Management don’t like to explain things from first principles with every meeting and they’re likely to be much more helpful if they see you’ve done your homework.
“When people talk, listen completely. Most people never listen” Ernest Hemingway
Many analysts really suck at listening. They go into meetings with a certain bias, and then look for evidence that will confirm that bias. They hear what they want to hear and discard everything else. Regardless of what was said in the meeting, they seem to come out with renewed confidence in their own thesis. Note that good listening doesn’t mean you should believe everything that management tells you, but you need to hear what they are saying before you’re in a position to challenge it.
- Stay Flexible
Many analysts like to have a list of pre-prepared questions. However if you’re not careful this can restrict your flexibility to get the most out of the meeting. I find it better to go in with a list of broader objectives I want to acheive. This gives you the flexibility to pursue interesting avenues of discussion while still maintaining some structure. Good listening skills are a part of this since an analyst or investor will probably want to adapt their questions based on what management is telling them. A list of questions taken one by one can end up feeling stilted and make it harder for the management to really open up to you. Ultimately the mix between structure and flexibility is a personal choice but as you become more proficient you’re likely to want to drop the rigid structure.
- A Mix of Open and Closed Questions
Use your judgement to ask a mix of open and closed questions based on what you want out of the discussion. When you want management to open up to you and tell you what’s important to them right now, then ask open question. When you’ve identified something specific where you need to tie management down to a straight answer, then a closed question usually works better. It’s usually best to start on each new topic with an open question so that you don’t miss anything on the bigger picture, then drill down based on the answer to that open question.
- Speak the Language of Management
Adopt the language that management uses – use the correct divisional names and the correct industry terms. It’s easier to open up to someone when they’re speaking the same language as you. It also means you’ll get the information faster with less scope for confusion.
- Pitch Questions at the Right Level of Detail
Pitching the level of detail is important. You don’t want to be asking basic questions that you can learn from the summary section of the 10k. But equally don’t get too detailed. Many sell side analysts are guilty of asking questions that are entirely immaterial – they get obsessed with filing out their models and start asking management about future tax rates in Angola or a 20bp margin shift in Papua New Guinea. This is something that can really infuriate management, who (rightly) don’t consider it their job to build a detailed model for you. Save your questions to gather insights that really matter to the overall value of the business.
Triangulation is a powerful technique that involves gathering information from a number of different sources in order to get to the truth. It’s a technique that’s used to great effect by TV Detective, Columbo. In this clip he uses information that he gathered separately from a car salesman to challenge the suspect’s own version of events. The same technique can be used with management interviews – start with something that you already know from another source (e.g a competitor, a supplier or a news source), and ask the management their own view on it. So for example “Your competitor X recently mentioned that prices in China were under pressure due to oversupply in the market. What’s your experience of that market right now?” This shows management you know what you’re talking about and it’s more likely to elicit a response than the more clumsy “Are prices in China rising or falling?”
- Check your Ego at the Door
Many analysts use management meetings as a forum to demonstrate to their colleagues how well they know their sector and how smart they are. These analysts ask detailed questions about obscure assets in order to catch management out. The problem is that the answer (even if they can answer) is unlikely to further your understanding of the company. To an experienced portfolio manager, the use of these techniques in a meeting is going to be more irritating that impressive.
- Understand How Management Think
Facts are commoditised and are generally already in the public domain (if they’re not you shouldn’t be asking about them). A good meeting with management is mostly not about gathering facts – it’s about gathering insights: Insights into the market and insights into the way management think about the market. This is much more valuable than gathering facts because it equips you with a deep understanding of how the company is likely to perform and how management is likely to react under a number of possible future scenarios.
10. Just One Last Thing…
Again, this technique draws on the wisdom of detective Columbo. It’s otherwise known as the “elevator question”. The formal part of the interview is over and management are feeling more relaxed. You can use this time to elicit information in a more “Chatty” environment. Like detective Columbo, this a great time to ask…Just one more thing.
Like with many things, each person will have a slightly different style to their interview technique – and that’s fine. But the best analysts will always be questioning how effective their meetings are and how they can improve the outcome. If you’re an analyst with a skill for interviewing management we’d love to hear from you – we’re always on the look out for good analysts here at StockViews!