What should I be listening for in calls?
I'm very new to the industry. Whenever I listen to calls with management or IR, my PM always asks for my takeaways. I often struggle to know what to say. I know it will differ for every company but how do recognize what is important in the calls? How should I be prepping?
Can't help you without knowing what investment style. Fast money focuses on different things from a wide moat shop.
Great point. Long-term, wide moat, large-cap, big AUM investing.
Oh wide moat, great, that's my alley (well, at least what I aspire to). You just need a framework: either go with Porter's Five Forces. Or, I have been moving toward Hamilton Helmer's 7 Power framework.
After the call, just summarize where that business stands in the five forces / 7 power? And you get a good sense of how management thinks about the market they are in, where it's going, how they allocate capital (is that prudent or stupid? eg. prudent if buying back during trough and issuing stocks when market is buoyant), etc.
Eg. Pool Corp
- Bargain power over suppliers: suppliers are fragmented, POOL has bargain power
- Bargain power over customers: customers are fragmented (mostly local contractors), POOL has bargain power
- Barrier to entry: high, not impossible, but takes time to build trust with thousands of suppliers and customers over decades
- Competition: it's them against mom-and-pops, POOL rules
- Threat of substitutes: not sure if there is a substitute for pool equipment, maintenance products
Your summary to PM: seems to be a very good business, here is why (above)
For me if I am reading (I never listen, find I miss things too easily) a transcript it is because I already know the business fairly well. So I am looking for comments that suggest I should alter my estimates or anything related to management's strategic vision. On estimates, its revenue or margins right? Any comments pertaining to changes in organic growth rates, price-cost dynamics, competitive actions in the channel, or changes in reinvestment plans (capex higher/lower, R&D, S&M, headcount). Strategic comments will fall into either capital allocation or product development. How is a new product doing, why is it better than what is out there or valuable to customers? On capital allocation, I'm looking to hear about the M&A pipeline, changes to the existing portfolio of businesses, buyback/dividend philosophy changes...
That's really the full spectrum. I can cover recent numeric results in the press release, I really don't care about that part of the call unless they need to explain an especially bad or especially good number. I am reading the transcript for things not in the press release or opening scripted statements.
I actually thing reading the transcripts is one of the lowest value parts of my research process in terms of the ratio of time relative to value. You might read a 30 page transcript and there is one paragraph that is important. Meanwhile you have to read the 5th derivative of the same question on page 28 from the sell side because they feel the need to get their name in the transcript for marketing purposes even though mgt said they aren't providing guidance on that item. When you see "most of mine have already been answered....but let me ask about...." you know there's some absolute nonsense about to be asked and that most of the juice has been squeezed on the call in terms of valuable content.
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