LISTEN your way to a BETTER portfolio: Here’s why this skill is crucial for seasoned and novice investors! [Wednesday: The Independent Investor]
Miles Everson’s The Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
Hello!
We’re excited to share another investing insight in today’s “The Independent Investor!”
Every Wednesday, we bring you investing insights because we believe this can help you achieve true financial freedom through wealth creation.
Today, we’ll talk about how you can identify companies who have management teams that you can trust.
Excited to know more?
Continue reading below!
Miles Everson
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute
The Independent Investor
You don’t have to second-guess everything the people around you have to say if you trust them.
The same goes for investments, as it’s important to know that trustworthy people are running the firm you plan to invest in.
Unfortunately, not every firm out there is trustworthy, so you need to find out the ones that you can trust.
When everything is going well for a firm, executives trip over themselves to make that clear, resulting in longer and more precise earning calls.
However, when earnings take a turn for the worse, some management teams turn to what we call fact-deficient, obfuscating generalities (FOG).
This makes it difficult for brand-new investors listening to their first quarterly earnings call since they won’t know what the management team is attempting to hide.
Worse, some companies don’t even bother communicating with shareholders consistently. Automotive company Tesla and investment bank Goldman Sachs went years without investor days… until their stocks started to plummet at the beginning of 2023.
Communication and trust go hand in hand, that’s why knowing a company has a trustworthy management team is important for investors.
To better understand this, let’s take a look at General Electric’s (GE) example.
When Jack Welch led GE, the conglomerate built a strong reputation for having a strong management and growing into new industries. The firm owned diverse businesses like financial services, home appliances, and energy infrastructure. It even dabbled in entertainment.
At its peak, GE’s stock rose to more than 4000% under Welch’s watch.
Needless today, investors put their trust in him when it came to knowing what’s best for the business.
However, all that changed during the 2000s as the company began to unravel in the face of a new chief executive and the Great Recession of 2008.
Investors became impatient and lost trust as they weren’t getting the answers they needed during earnings calls.
During one instance, rather than being honest with analysts, GE’s management gave vague answers about driving revenue and earnings growth. The company provided no facts nor data regarding these very important questions.
As a result, investors lost trust in the company, leading to the company’s stock to take a massive nosedive.
Data point from Altimetry
More than several years after its stock plummeted, the firm is only now starting to turn things around.
As can be seen in GE’s example, when investors lose trust in a company, it’s hard to earn it back.
So, as an investor, what can you do to ensure that the management team of the company you plan to invest in is trustworthy?
It doesn’t take expensive analysis or an advanced degree to trust the companies you plan to invest in.
All that’s needed is a little time.
According to Rob Spivey, the Director of Research at Valens Research and Altimetry Financial Research, listening to at least a year’s worth of earnings calls is one of the best ways you can do when building trust with a company.
By listening to these calls, you’ll start to pick up on when management is dodging questions that it used to answer.
Additionally, you might notice differences in the information that is presented.
Spivey says picking up on these cues takes time. It’s all about getting a feel for the flow of the presentations you listen to.
With today’s volatile and unpredictable market, it’s hard to find stocks that are worth investing in.
While difficult, it’s not impossible to find a company with a management you can trust. All you need to do is take a little time in looking closely at the firms you want to invest in.
Keep the investing insight we shared with you in mind the next time you scour the market for firms to invest in!
You never know, you just might find a company with a trustworthy management team behind it!
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
LITERALLY.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
Our goal?
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
Cheers,
Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
Powered by Valens Research
www.valens-research.com
