9 Best Practices for Making Field Research Yield Great Stock Ideas

Remember the first time you visited a zoo? You probably found some elements better than expected (a roaring lion or polar bear diving through the water) and some worse than expected (the smell of the monkey house). Similarly, as analysts, we can easily convince ourselves we have the proper perspective on our sectors and companies without ever leaving our desks, but the reality is we don’t know what we’re missing. I recently attended a conference which stimulated me to provide these best practices when it comes to attending industry events.

There’s usually more value in visiting a privately-held company or attending an industry event than visiting the management of the stock being researched

Here’s a thought: don’t visit the company that’s the target of your research efforts. Ok, so that may be too extreme, but I’m trying to be provocative here because I rarely learn anything proprietary or out-of-consensus when speaking to management about its own company (unless the company is new to me).

Let’s remember proprietary, out-of-consensus insights are as critical to stock calls as flour is to bread or Foxconn is to making iPhones. So I’ll back off my statement a bit and say, go ahead and visit the company you’re researching, but only if you don’t have the core foundational knowledge for the company, or if your firm has a large position and wants to ensure the thesis is still on track. My key message is avoid giving yourself a gold star for having visited 25 companies in the past year if every visit was to simply ask a company about its own performance. (Are they going to tell you about an impeding problem or an undisclosed revolutionary new product during any of these meetings?)

Instead, get on the road to meet those who aren’t muzzled, such as privately-held companies, as well as the suppliers, customers and consultants for the companies being researched. With this simple but important concept out of the way, here are nine key best practices to extract the best insights useful for stock picking:

1. Don’t limit yourself to “Conferences” because sometimes you can get to the information in less time by attending seminars, trade shows or special events such as industry annual award banquets
2. Separate good from great events to attend:
   1. First identify the critical factors for your sector and then only attend those that help narrow down your assumptions surrounding these critical factors. For example if you’re researching the apparel sector and a critical factor is “apparel pricing deflation,” one of the assumptions you might want to answer is the adoption rate of off-price and low-price fashion. If you haven’t identified the critical factor assumptions stop here, because getting on the road to research things that don’t impact a stock’s critical factors is a massive waste of time.
   2. If there’s only one assumption that needs answering, don’t spend a minute traveling anywhere that can’t help answer this question. Attending a fashion show launching new apparel isn’t likely to be as helpful as one that has experts on pricing compression. Find events where the key decision makers have the answers to the critical factor assumptions and are willing to talk about them. The end of my last sentence was important in that many sell-side conferences parade management up to the podium to provide canned speeches (which can be heard via the web) and often there’s no one-on-one dialogue with management.
   3. When deciding which event to attend, review a detailed version of the event program (you may need to request this from the event coordinator) and the prior year’s attendee list to ensure you don’t waste your time at an event that doesn’t have key decision makers or focus on the assumptions for your critical factor(s).
3. Try to get an advanced list of speakers and attendees to set up meetings well before you arrive at the event and for emailing them afterwards (you may need to contact the event coordinator for this list)
4. Determine when to show up and depart. Just because it’s a two-day conference or company analyst meeting doesn’t mean you need to be there for its entirety. Find when the experts will be speaking (or available to speak with you) covering the critical factor assumptions and make a point of only participating in those elements.
5. When you attend an event:
   1. Dress like those you’ll be interacting with. If you’re in a suit and they’re casual, you might appear intimidating. A basic rule in influencing others is to appear as similar as possible to the person you’re trying to influence.
   2. Approach good speakers after their presentations — they are usually looking to network
   3. Attend social events if there’s the opportunity to work the crowd (attending a conference’s standard evening entertainment for 90 minutes may be fun, but isn’t likely to yield as many insights and having one-on-one conversations during a cocktail hour)
   4. If appropriate, find the senior event coordinator and offer to speak at the next upcoming event to provide the financial community’s perspective of the industry
6. If you didn’t do this before the event, while there, see if you can get the list of attendees, including their contact details and then scan to see if there are other valuable information sources you didn’t meet
7. For EVERY person you speak with, at the end of your conversation, ask them for leads of other experts, including those possibly not attending the conference. People love to show they have a large network and will usually offer good referrals.
8. If you meet a good information source (even if it’s company management), make sure to follow-up immediately after the conference with a “thank you” email to show you want to keep the dialogue going. If a contact is extremely valuable, make a point of reaching out to them to see how you can meet their needs (if you only contact them when you need something, they’re likely to stop replying to your requests).
9. Given the significant time required to travel from your home location, try to do more than just attend a single event, but don’t forget the rule above that it should be to help clarify the assumptions around your critical factors

Just as the zoo provides a deeper understanding of wild animals, if you follow these best practices you’ll develop a deeper understanding than consensus about the critical factors likely to drive your stocks (key to making great stock calls). Those insights might be as impressive as a five-ton elephant or as unappealing as the floor of the penguin house…insights you’ll know before the market.

This Best Practices Bulletin™ targets activity #1, “Generate Informed Insights” within our GAMMA PI™ framework, which is discussed in detail in our workshop: Generate Differentiated Insights Through Better Discovery, Questioning and Influencing.

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©AnalystSolutions LLP All rights reserved. James J. Valentine, CFA is author of Best Practices for Equity Research Analysts, founder of AnalystSolutions and was a top-ranked equity research analyst for ten consecutive years