I once wrote a five-part (labor of love) series for RealMoney called, If You Get to Speak to Management.” It is offered freely here. Tonight, I want to offer a simpler bit of advice: “Ask the opposite question that you would want to ask.”
Management teams and investors relations folks are generally pleasers. They bias what they say toward what people want to hear.
Are you concerned about them contimuing the buyback? Then ask them about retaining capital for capital flexibility. Are you worried about their balance sheet? Then ask them about how they will grow the dividend and buyback.
In an environment like this, where capital is scarce, it could be productive to ask how management teams are managing M&A and buyback when valuations are so cheap. “Why aren’t you buying out your cheap competitors? Why aren’t you buying your own stock?”
I had a boss 1998-2001 who was a pro at this. He would ask “dumb” questions on conference calls, and I would start to correct him, and he would make a “slash the throat” gesture. I would shut up, and invariably, the Wall Streeter would tell a variety of lies that we would listen to, and once the call was done, disregard them.
It was an excellent tool for validating who thought we were patsies, which we were not. Sticks in the mud, well, maybe, but we did well for our clients.
As for now, I still think the tool is useful. Ask the opposite question to management teams and see how they fare.
The technique of asking the opposite seems like one of those little things to be written down and always remembered. Thanks.
As someone who does due diligence and writes about how investment decisions are made, I loved this posting.
There is so much blowing of smoke that occurs (by companies when you are considering investing, by investment managers when you are choosing among them) that you need strategies to ferret out the real picture.
This is a good one; keep them coming.