Don’t Miss a Great Insight Due to Poor Planning

During the 2004 Olympics, rifle shooter Matt Emmons was one shot away from the gold medal.  For his next shot he hit the target dead center, but failed to win the medal… Why? Because he aimed at a competitor’s target, known in the sport as a crossfire.

I applaud when equity research analysts take the extra effort to proactively obtain differentiated insights (through proprietary calls or face-to-face interviews), which are critical to great stock calls. Like any Olympian, it takes significant time and effort to prepare for the games, in an analyst’s case, to find sources, get them to agree to speak and then line up a call or meeting.  Despite all this effort, I find too often analysts miss their target because they don’t exploit the full benefit of these calls and meetings in three areas: A) influencing; B) questioning; and C) logistics.  I’ve already delved into “A” and “B” in other posts and so this one is dedicated to optimizing logistics.

Advanced planning is an important step for interviewing others, but unfortunately analysts too often let this relatively easy step slip from their agendas

Below I share some of my best practices for preparing the logistics of your interview with information sources (including interviewing company management). Note, these are just a small sub-set of the steps for generating unique insights (using our ASPIRE™ framework).

• Phone calls are efficient, which is a good thing, but the benefits of in-person meetings are: 1) easier to build rapport and trust; and; 2) more difficult for the interviewee to deceive in-person than over the phone or email (especially useful for meetings with company management). These benefits must be weighted with the significant time required for travel. Therefore, if travel is required, attempt to meet multiple contacts.
• For in-person meetings, choose an ideal location. Normally you won’t have much choice, but if you do:
  • Avoid noisy restaurants: If you’ve been offered a lunch or dinner meeting, call the restaurant and speak to the senior host to pre-reserve a private room or quiet corner. When possible, get a table that has at least 20 percent more room than the size of your party so there is plenty of room for taking notes.
  • Avoid meeting outdoors: The weather is unpredictable and you’re more likely to be disturbed by noise.
  • Avoid activities that restrict note taking: Playing a round of golf with a C-suite executive is a great way to build rapport, but you may not come away with any details beyond what you can write on your scorecard using a three-inch pencil.
  • Avoid impersonal spaces (e.g. hotel conference ballroom): If you’ve been given a one-on-one with management during a sell-side conference, ask for a small room so that your interview will feel more personable. If you’re given the Grand Ballroom, try to get a private room through the hotel or find a quiet coffee shop.
• Prepare for important conversations by proactively eliminating external and internal distractions:
  • External:
    • Climate, such as room temperature
    • Background noise or activity
    • Interruptions (your phone)
  • Internal:
    • Time constraints (book your return flight so you’re not focused on missing your flight or needing to catch an earlier one)
    • Create a list of questions (using the ICE™ framework) in advance to:
      1. Avoid being distracted during the interview over concern of what to say/ask next
      2. Reduce concerns about characterizing something incorrectly
    • Reduce concerns about anything that needs to occur immediately after the conversation has ended (such as where to go for your next meeting)
    • Try to avoid thinking about personal matters that may be causing underlying anxiety
• For conference calls, ensure everyone has the dial-in number and passcode days in advance. Preferably, send out a calendar invitation that includes the details in the event so that it’s on everyone’s calendars (in their time zones) and available on mobile devices. Use a speakerphone in a quiet room or wear a headset so as to have your hands free to take notes.
• If you will be interviewing company management in your office and internal colleagues from other offices are dialing into a speakerphone to participate, ask a colleague to take detailed notes (instead of you) which serves two purposes:
  • Management will feel less threatened if they don’t see you writing everything down during the interview (but have a notepad available to show you have interest)
  • It allows you to be more focused on leading the interview
• Make sure to get your colleague’s notes immediately after the interview and update with any thoughts that are not in the notes
• Use our ICE™ framework to formulate questions.  When it comes to asking the questions:
  • Attempt to have at least one question covering a critical factor for every 3 minutes of interview time (i.e. create 10 questions for a 30-minute interview)
  • It can take 3 hours to 3 days to identify the 1-4 critical factors for a stock and so invest the time before your first meeting so that your line of questioning is in areas likely to impact the stock price
  • If interviewing multiple individuals in one day (such as when visiting a company or conference), approach critical factors from multiple angles by asking each interviewee his or her individual perspective (if at a company, check to see if responses are aligned or appear to be based on separate agendas)
  • Ensure to ask questions that will help understand how the interviewee thinks about the critical factors, in addition to the specific answers about the assumptions (the individual may have an entirely different philosophy about the factor that you and the market miss)
  • Do not include questions that can be answered by reviewing public documents
• If you’re on the sell-side:
  • For company visits, try to bring clients (the more assets the client controls the better); this can result in more senior management in the lineup and better responses to your questions
  • Make your question list available to buy-side clients just before the meeting or call begins (not any earlier because the list could make its way into the hands of management, which will allow it to rehearse answers and potentially cause their responses to be less transparent). As a value-added element, make the questions available in the future to other clients who are interviewing the same management.
• Immediately after the interview:
  • If you find value in the exchange, immediately add the interviewee’s details to your contact list because if you don’t do it then, it won’t get done and you won’t have their details when you need insights required for a big stock call
  • Create follow-up reminders for important activities such as such as telling firm colleagues or valuable industry contacts about insights you learned that may impact their companies
• Taking from our PRACTICE™ framework for influencing, a great way to cultivate a long-term information source is to ensure you have satisfied the “what’s in it for them” (WIIFT) after the interview. This may include sending them information they’ve requested, which will in turn build trust and give them a sense they should reciprocate by sending you information in the future. If they’ve asked for something during the interview, follow up immediately (don’t wait to do this or it’s not likely to get done).

The purpose of this post is to ensure you maximize the benefits of interviewing information sources.  After all, if you done all the work to schedule a call or meeting with a great information source, you want to ensure when it’s show time, you’re shooting directly at the right target.

This Best Practice Bulletin™ targets #1. Generate Informed Insights of GAMMA PI™, within our Pathway to Success Framework. It’s also is a subset of our Detailed Reference Card: Generating Sustainable Sources of Insight with ASPIRE™ Framework.

Let me know if this Best Practice Bulletin™ helps and how I can improve upon this best practice. If you’re interested in exploring this topic further, AnalystSolutions provides equity research training with a specialized workshop to help Generate Differentiated Insights Through Better Discovery, Questioning, and Influencing.

Improve you or your team’s stock picking and communication skills with our equity research analyst training tools, which includes workshops such as the one above, as well as our GAMMA PI™ assessment and one-on-one coaching.  Also, consider ordering the book that inspired the founding of AnalystSolutions and the Best Practices Bulletin: Best Practices for Equity Research Analysts.

Visit our new Resource Center to find more helpful articles, reference cards, and advice towards your growth as an Equity Research Analyst.

©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