One of the best ways investors can increase their knowledge about stocks they own is to listen to earnings calls. Increasingly, companies are making it easier for anyone to listen in to their calls. On top of that, many smaller companies will also allow retail investors to ask questions.
If I cast my mind back half a decade two companies with differing approaches come to mind. A fledgling Nanosonics (ASX: NAN) used to have its conference calls run at least an hour, would take as many questions as time allowed, and would include at least a couple of retail investors in the call. Then, they would post the recording on their website.
In comparison, Bellamy’s (ASX: BAL) would not invite all shareholders to their analyst calls. In comparison to Nanosonics, the company seemed to make it difficult for all shareholders to access the conference calls, and I can well remember my frustration at knowing that some analysts had had the benefit of listening to the call, but I had not.
In the time since, Bellamy’s has faced a class action, settled it, and been taken over at well below its share price peak. In comparison, Nanosonics has stormed to higher highs, grown its revenue, improved its margins and will, in due course, launch a new product.
Throughout my career covering ASX listed companies I have built an edge not using numbers (computers do it better) but in judging people, and what their behaviour says about their view of the quality of the business they are running. Transparency is always a good thing.
With that in mind, here are 3 questions I always ask myself as a matter of course, when listening in to conference calls. While a single “no” to these questions wouldn’t be a big deal, I have learnt that if I’m always answering “no” to these questions, then it is wise to be cautious.
- Do the presenters call out any weaknesses in the report, upfront, and explain them?
- This is important because it can help us distinguish between presenters who are interested in explaining the business from those who are interested in promoting the business. I want the former.
- Do the presenters exhaust audience questions or go for at least 1 hour?
- A promoter will not want many/any questions, because it means they lose control of the audience’s attention. An explainer wants to answer all questions, even stupid ones.
- Are analysts asking any hard questions?
- Presenters select the questioners. A promoter will favour analysts who start their question with “great quarter guys” and ask some very easy question about a positive aspect of the report. An explainer doesn’t want their ego massaged and will happily accept or even favour question from people about their concerns; in order to assuage them.
As listeners, we can gain value from both promotional and explanatory conference calls, but as investors, we should favour management teams who want to explain the business; not merely promote it.
This post is not financial advice, the author owns shares in Nanosonics, and you should click here to read our detailed disclaimer.
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