It has always been
my belief that markets had more to do with mass psychology rather
than pure mathematics and / or accountancy and / or physics. That is
especially true in case of markets of under developed / developing
economies as compared to advanced economies. The reasons are not far
to seek. Developing / under developed markets are traded by
relatively emotional participants and trades are initiated more on
whims and fancies, where as they should be a result of deep study
and consideration. Price discovery mechanisms are therefore skewered
and the volatility is therefore higher in these markets. The point
I'm trying to underscore here is that you should pay as much (if not
more) attention to the psychological aspects of the market analytics
as you do to the hard numbers. I recently had an amazing experience
with a few investment opportunities (my holding co has active
investment in these co's and names are therefore left out for
obvious reasons) we'll call them co. "A" and co. "B".
During the
initial communication with Co "A" the usual standard procedure was
followed and a lazy response was received from the management
through official channels. They didnt seem too interested in meeting
analysts and sought detailed information on our background, after
which, if they deemed fit, they would meet my team. Round 1 over,
meeting was granted, but the management refused to arrange the
conveyance (the co was out of Mumbai), which suited us fine since we
did not accept direct / indirect benefits from the managements
before buying their stock anyway. The meeting went smoothly, we were
allowed to visit any / everywhere we wanted, information was made
available freely and the outlook for the coming quarters / years was
provided, which according to us was very conservative. Try as we
might, the management would not raise the guidance. The lunch
offered to us was simple and vegetarian, cooked by the in-house
canteen chef. No imported chocolates, no havana cigars, no dry
fruits and ofcourse no alcohol (managements sometimes pamper
visiting investor analysts beyond acceptable limits). I freaked out
! Here were guys who focused on business. My experience with
co's whose managements rolled out the red carpet for my visits was
simple - they probably debited that expense to the co's dividend
payable account and short changed the average investor like me ! I
casually whispered to my team that I would certainly buy the stock
if the management did not give us "farewell" gifts. My face fell
when we were handed envelopes in the evening when it was time to
return. To my sheer delight, they contained CD-Roms of corporate
information, brochures specifying product details (it was our
request) and audited annual reports ! I happily bought the stock for
my family and holding co.
Cut forward to co
"B" - I liked the Co's business so much, I broke the norm, bought
small quantity of shares before I met the management and visited the
plant. Naturally, I got the annual report by post and an invite to
the annual investor meeting. I was hoping the experience would be
similar to Co "A". I would then happily raise my stake. I was in for
a surprise ! The meeting was in a low profile hall, the banners were
sparse and the gathering was business like. There were no usual
"bells and whistles" like corporate gifts, snacks, aerated drinks
etc etc. You MUST attend an average Indian annual meeting to witness
how the investor sings poems in praise of the management, "shlokas"
from the religous books are quoted in appreciation of a "job well
done" by the management. That is till the attendees realise there
are no takeaway gifts, few snacks and beverages ! I actually possess
a printed annual report from a company wherein the management has
specifically requested visiting shareholders to refrain from asking
for gifts !
This management
of Co. "B" was polite but firm and stated that they had put in place
an austerity programme which applied from the president to the peon
and no unnecessary expenses would be incurred. Apart from packaged
water, no courtesy would be shown to the investors at the meeting.
I freaked out yet again ! The Q&A session with the management
was satisfactory. I sought permission for a plant visit and
management chat, which was denied (initially all managements are
weary as many non serious players bother them excessively). I
offered to take a stake in the Co which was denied ("we do not wish
to dilute our stake in our Co" !) and naturally "we do not wish to
meet an analyst at our plant". These guys whipped up my appetite.
What followed was a large dividend by ECS on my existing holdings. I
had my confirmation. We raised our holdings.
We continue to
hold both stock "A" & "B" which are near highs (the indices are
atleast 20 % below their highs) but the lessons learnt were supreme
! I had requested every person that I felt would be capable of
arranging management meets with these two entities. The response was
shocking - "bekaar companiyan hai" (they're lousy companies), "they
don't know how to market themselves", "cocktail parties are a must".
"Invest at your own peril, you'll lose your capital". I'm so glad I
didn't listen !
Maybe some day,
some management will grant me a meeting at McDonalds over burgers
and coke. If everything else fits the bill, I'll jump at the
stock ! Who says nice guys finish last ?
Vijay L Bhambwani
Ceo - BSPLindia.com