I worked earlier in my career as a writer and reporter so I have some experience interviewing people, a skill that comes in handy when assessing management.
These are three short rules to interviewing management that I learned in my early 20's. It's very basic but essential so as to not waste anyone's time:
1. Ask open ended questions. The inverted way of saying this is: Do not EVER ask "yes" or "no" questions. We all do it. Get in the habit of not doing it, by whatever means necessary. The corollary to that is ...
2. Do not ask leading questions. It traps yourself in your own presumptuousness.
3. Silence is your friend. Don't fall prey to the knee jerk reaction of filling empty space and as much as you can, do NOT finish their answers. Invite them to continue to expound on whatever they are talking about.
I recently read somewhere a suggestion to not interview mgmt b/c it creates biases. I find that a mgmt interview puts qualitative skin around the financial bones so I try to be aware of flattery ("Oh, great question" etc) and all the other bullshit people put forward when they talk to me.
One of the ways I try to avoid those biases is by asking myself ...
"how often do you think they repeat this narrative? do they actually believe it or are they just used to saying it? how can I get them off this narrative and get them to talk about things on the 2nd level"
... insincerity is the enemy of revelation.
Management is such a critical component in the long term success / failure of small companies that not understanding their motivations, their perspective and their imaginations leaves too much to the whipsaw of quarterly results, about which, sometimes even they have no control. But they are responsible for the long term operational maneuverings of a company, and that is the essential key to a company's long term growth and profitability and an investors ability to compound wealth repeatedly.
We all have our own truths, in life and in business, and investing is simply a way to handicap them, to quantify them, to wager on them. I don't profess to know more than anyone nor to have answers about everything. But I have a bit of experience interviewing people and I just wanted to share one tool that I think is essential to learning more about an investment.
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- Long Cast Advisers
- Avram Fisher, Founder & Portfolio Manager of Long Cast Advisers, is a former equity analyst at CSFB and BMO covering industrials and business services. He has prior experience in private equity; as a corporate governance analyst; as a writer; reporter and private investigator; and as a lifeguard and busboy (I still clear plates when my kids don't). This blog is an open book of ideas about patient investing and about starting up a small-cap focused RIA. It is part decision-diary, part investment observations and part general musings. Nothing on this blog is a solicitation for business nor a recommendation to buy or sell securities. It is simply a way to organize and share thoughts with an expanding audience of independent, patient and talented small cap investors. www.longcastadvisers.com