I STRONGLY BELIEVE IN EYES-AND-EARS INVESTING, as popularized by Peter Lynch*(1). And I would much rather do my own research on companies, independent from what management of the companies(if you can talk with them) tell you.
Most often, CEOs of public companies are cheer leaders for their own regimes. They want to tell you optimistic news because they desperately want their predictions to come true. Many of my biggest mistakes have come from being too close to mangement, Most of what CEOs have told me over the years represented wishful thinking on their part. Once, a president of a direct-mail company told me, "We're going to be a $100 stock." The company was selling for $8. He was offended when I said to him, "I settle for $20."
"You've got no vision, son," he said. "That's why you're a stockbroker and I run my own business." I went to the parking lot after seeing the president, and pulling in next to my car were two employees in a company station wagon. "I manage people's money," I said to them. "And I'm thinking about buying stock in your corporation. How do you like working here?"
The first employee said, "They treat us like mushrooms in this company."
"Yeah," said the second employee, "kept in the dark and covered with shit."
"Mangement grabs with both hands," added the first. "Not much trickles down to us. I'd sell it short if I were you."
Often you tend to get misinformation from both management and employees. The boss is only optimistic. The workers see only the warts. Same company, but often widly dissimilar observations.
When I get a chance to talk to management, I always seek out an employee ot two to see the other side of the coin. It helps me make a better evaluation of investment possibilities.
Have you noticed articles in magazines and newspapers in the last several years about the so-called paperless society? Like world peace and loving your neighbour, this is a dream that is probably unreachable. When I was talking to a thoughtful friend about this subject, he said to me, "Do you know about Iron Mountain?"
"Is it a novel by Thomas Mann*(2)?"
He looked down his nose at me. "It's the largest records management storage business in America." Iron Mountain*(3) is indeed that, with revenues exceeding $400 million a year.
I came back from lunch with my friend that day and found an intern in my office sitting at a desk surrounded by annual reports stacked so high they almost obscured him from view. "what the hell is this?" I asked my crew.
"Oh, a new rule," they said. "Any company we invest in, we have to keep the annual reports on file for five years."
"That's ridculous," I said. They shrugged, used to my railings against bureacracy. But go to any law firm or corporate office or hospital. They are drowning in paper. So much of this volume has to be saved for X numbers of years, a requirement of the IRS and other government agencies. Iron Mountain fills extraordinary need in today's society. Companies and individuals have their files and documents picked up by the storage company, and they pay rent every month while the paper continues to mount. What about microfilming everything? This solution is years away from being practical. Meanwhile, Iron Mountain continues to buy up storage companies around the country, and abroad, growing by acquisition, installing its systems, and quietly buiding an empire.
I would see the Iron Mountain trucks on the streets of my city. Several times I stopped to talk with the drivers. "How long have you worked for the company?" I ask them. "How do they treat their employees?" In all cases, I got wonderful reports about the decency of management and the hard-working ethic they fostered. The trucks were always spotlessly clean as well, as contrasted with one of their competitors. (I do like to invest in companies where there seems to be pride reflected in what they do.) I bought the stocks mostly in the low teens. It now sells at $30. The reasons I bought it originally are just as compelling today.
This example shows how important it is for you to watch for society-wide trends to develop into new investment opportunities - and how it's equally important to do your own research in checking them out.
*(1)Peter Lynch (born January 19, 1944(1944-01-19)) is a Wall Street stock investor. He is currently a research consultant at Fidelity Investments. Lynch graduated from Boston College in 1965 and earned a Master of Business Administration from the Wharton School of the University of Pennsylvania in 1968. He is not related to Edmund C. Lynch, the co-founder of Merrill Lynch.
*(2) Paul Thomas Mann (6 June 1875 – 12 August 1955) was a German novelist, short story writer, social critic, philanthropist, essayist, and 1929 Nobel Prize laureate, known for his series of highly symbolic and ironic epic novels and novellas, noted for their insight into the psychology of the artist and the intellectual. His analysis and critique of the European and German soul used modernized German and Biblical stories, as well as the ideas of Goethe, Nietzsche, and Schopenhauer.
His older brother was the radical writer Heinrich Mann, and three of his six children, Erika Mann, Klaus Mann and Golo Mann, also became important German writers.
When Hitler came to power in 1933, the anti-fascist Mann fled to Switzerland. When World War II broke out in 1939, he emigrated to the United States, from where he returned to Switzerland in 1952.
*(3)Iron Mountain Inc NYSE: IRM, founded in 1951, is a company whose headquarters are located in Boston, Massachusetts. It offers records management, information destruction and data backup services to more than 120,000 customers throughout North America, Europe, Latin America and Asia. Iron Mountain is a component of the S&P 500 Index.
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