Why I Never Talk to Management

by Geoff Gannon

I never talk to a company’s management before I invest in their stock.

Since I usually invest in micro cap stocks, it’s very easy to talk to management. I just don’t think it helps. In fact, I think it hurts.

It’s psychologically dangerous, because investors who talk to management get confident for all the wrong reasons. You can’t take anything management says at face value. Not because CEOs and CFOs are liars. But because we are all liars. Especially to ourselves. So, if your question is:  "are you going to pay a dividend?" or "are you going to do a stupid acquisition?", they'll tell you what you want to hear until one minute before they announce they've done the exact opposite thing.

They're probably telling themselves they are committed to a dividend until the second they have the chance to buy a competitor instead. That’s when they think: “This is a once in a lifetime opportunity. We can’t pass up on this. It’s okay. Just this once.”

It’s natural. We all do it. Projections and future plans aren't something I want to hear about. I look at management's past interviews, past record, and past behavior. I read old annual reports in order. So, if the company has annual reports on its website for the years 1999 – 2010, I start with the 1999 annual report and read up to the present.

I assume people never change.

That sounds harsh. But it's an effective way to invest. Serial borrowers will keep borrowing, serial acquirers will keep acquiring, serial share issuers will keep issuing shares.

I don't believe them when they say they'll stop. I treat it just like if an alcoholic said: “tomorrow I'm going to stop drinking.” Okay. I appreciate the sentiment. But we both know what's going to happen tomorrow.

Until you've got demonstrated proof of a difficult and unusual change in behavior – not just language – I’m going to smile and nod and not believe a word you say.

That’s why I never talk to management before I buy a stock.

Now, talking to management and studying management are two completely different things. I’m all for studying management. I’m all for analyzing management.

I’m all for observing management. I just don’t believe an observer should speak with his specimens.

And once you own the stock, well that’s a different story entirely. If you want management to do something, you can talk to them. But if you just want information…

I’m skeptical that talking is the best way to get it.

Talk to Geoff About Talking to Management