Investors – Know Your Investment and the People Behind the Company

…If you aren’t allowed to talk to them on the phone- maybe they don’t want you as an Investor…

POINT ROBERTS, Wash., DELTA, B.C. – January 12, 2009- Investorideas.com introduces a new series of articles, The year of the Independent Investor, designed to empower independent investors to make better investing decisions in 2009 based on their own due diligence skills, intuition and the resources available.

This series was inspired by an investor that recently called looking for a phone number and contact information for a green investor index fund listed on our site. I looked it up in my data- base and went online with him on the phone and we went through the entire website but could not find a phone number to call. The contact info was an online form to fill out and submit.
Frustrated, the investor commented,” I guess they don’t want my money”.

He thanked me and went on with his research and hopefully found a fund or stock that met his needs in the green sector that was accessible and would take his call and answer his questions.

In the brokerage industry, one of the top rules for a stock broker is “know your client”. I think for investors, one of the top rules has to become, “know your company”. How many times have we all done research on a stock and tried to find the investor relations contact and it was an online form to fill out - not a person? Or you get a phone number and call and it’s an answering machine and you leave a message and you never have your call returned. Or the only time you hear a CEO speak is on a conference call that you can listen only, and after the call you contact the company by phone or email with a question you wanted to ask and they never get back to you?

Part of the problem is the irony that CEO’s are afraid to talk to investors and the public due to SEC regulations, which were supposedly instated to help protect investors. What it has done in a lot of cases is separate and isolates the management, the heart of the company, from the investors.

Investing in a company is also investing and betting on the people and the management. If you are never allowed to have the opportunity to talk to management – then maybe as an investor you should ask yourself if you are really ready to invest. You can have all the information on paper you want, all the fundamental investing research complete – but you still have no sense of who you are betting on. The recent Bernard Madoff scandal tells us that people make all the difference in the world.

I know from my own experience that I have made my biggest wins and my biggest mistakes by listening or not listening to my instincts on the people in the deal. When I have a gut feeling about management and go against it and I loose- who is to blame? I think as investors we have to take some of the responsibility for our success and failures. There are some great players out there that fool us all, but in most cases there was an inner voice that waved a red flag.

But how can you listen to your inner voice if you never talk to the company and you base all of your investment decision based on facts and figures and stock charts? I think all of these tools are invaluable, in particular stock charts, which can help indicate the right timing to get in once you have done your research. One of my favorite sites is Stockcharts.com, but there still has to be some personal connection to investing.

I think it is fair and reasonable for an investor who is serious about investing in a company to be able to request a few moments time of key management on the phone. It can be scheduled at management’s convenience and limit the call to a few key questions. Or as an alternative, you can ask the investor relations contact if the management is presenting at any investor conferences in person or online, or if there is audio or video file they can send to you, so that you can at least see and/or hear them speak. Passion, conviction and integrity (or lack of) can be heard and seen in most cases.

A great example of this is told in “Pour Your Heart Into It”: How Starbucks (SBUX) Built a Company One Cup at a Time, by Howard Schultz. One of his investors in the beginning (before going public), a doctor, believed in his passion and did not even read the business plan before investing $100,000. His instincts on the person paid off substantially for him. It’s a great book to read and will inspire both entrepreneurs to follow their heart, as well remind investors to use their instincts as well as knowledge.

I think if you choose an industry sector you are passionate about, find a company with a service or technology you feel makes sense and you would use, research the company using all the regulatory filings, annual report, stock charts and analyst reports and then get to know the company and read your gut instinct on it – at least at the end of you can live with the outcome better. It’s easier to accept a win or a loss that was true to yourself and your beliefs. There is always risk in investing, sometimes great companies and great people fail, but you can sleep better if you know you were not deceived by them or you went against you own instincts.

By Dawn Van Zant

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Email: dvanzant@investorideas.com