Here are some tips on how to analyze companies, big and small, before investing.
1. Meet the chief
While most advisors can only speak to management teams of large companies through quarterly conference calls, they should meet executives of smaller firms.
“A small company doesn’t have as many chances to make mistakes,” says James Meltzer, senior vice president with Macquarie Private Wealth. “So get to know the top executives and their business philosophies.”
2. Find hidden gems
Tom Burke, senior investment advisor at Canaccord Wealth Management in Montreal, watches for orphaned or unsponsored companies still under the radar. Not being followed by Bay Street analysts often means the company is cash-rich and doesn’t need to raise money in the market.
3. Listen to verbal cues
During presentations, Burke is wary of executives who talk about their company as if it’s their handiwork.
His hackles rise when a CEO consistently uses the first person to describe an accomplishment—“I, as opposed to we. That’s one of my pet peeves. It seems like the guy’s been reading too many of his own press clippings,” he says. “I like to see a CEO who’s leading an efficient team.”
4. Look for executives who play it straight
Richard Hart, an investment advisor at MacDougall, MacDougall & MacTier Inc. recently met representatives of a small gold company, and the CEO admitted they hadn’t drilled enough yet to know the mine’s prospects. He couldn’t even vouch for what grade of gold they’d find.
But Hart remained interested because of the CEO’s disarming honesty—he wasn’t unnerved by those tough questions. “My guard goes up if I find the management diplomatic or a little too well-prepared. I’ve experienced slick dishonesty at some of these meetings, and when that happens my first instinct is to get out.”
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Better ways to analyze companies >