Wednesday, May 13, 2015

Stocks DD Opines: The Shareholder Pledge, Shareholder Day & Words of Ethical Wisdom for Board Members


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Please sign the Shareholder petition with SEC PETITION link and share it with as many shareholders as possible.

 Let me start this post by way of a short self-introduction. I am a retail investor and have been buying and selling stocks for well over 14 years. A large part of my sweat from my prior day job & my net worth is invested in public companies. I consider my calling to invest in public equities. On the side, I intend to serve words of ethical wisdom to Board members of ALL public companies, with the intent make them more mindful in doing their duties towards Shareholders. I am hoping Board members of at least 50 public companies can see this wisdom and take the below pledge of ethics

I also like to see 1 calendar day in the year dedicated to Shareholders called 'Shareholder Day' (If we can have 'Presidents day', 'Veterans Day','Yoga Day' - I think the most significant and often ignored constituent in the modern economy, who in aggregate, have invested Trillions of dollars, the Shareholder deserves a day.) where Board members of ALL public companies  take/renew the 'Pledge of ethics' in front of their Shareholders. Many companies already do annual Investor/Analyst day. I am suggesting 3 changes: Nomenclature change-call it Shareholder day and not analyst/investor day, Make it a Common Day for ALL public companies & Have Board members take the Pledge of ethics in front of the company's own Shareholders. I am going to lobby with SEC, NYSE and shareholder advocates like Carl Icahns or Ackmans for making 'Shareholder Day' and 'Pledge of Ethics' a reality.

The  lynchpins of our modern capital market system are the following (and regrettably this is getting forgotten and needs to be reminded):
1. Shareholder Capital that allow entrepreneurs to start or grow business.  This is
capital produced by the sweat of ordinary people in many instances life savings.
2. Board that is appointed to SERVE interests of Shareholders(Absentee owners) and the implicit Trust that shareholders have in Board that they will do the right thing for all Shareholders

That said, I will make the following plea to Boards of ALL public companies and urge them to take 'The Shareholder Pledge'. 



Dear Board Members,

Subject: Please take 'The Shareholder Pledge'


 You are stewards of the capital produced by the sweat of ordinary people from all walks of life (Teachers, Software Programmers, Firefighters, Policemen, Nurses, etc). who have invested, in some cases life savings, for their retirement, education of their children, paying a mortgage in future, etc. It is these Shareholder's(Absentee owners) VOICE YOU are SERVING and you have an ETHICAL DUTY to protect and maximize value and conduct in EARNESTNESS and FAIRNESS at ALL times towards ALL shareholders.

Please be conscious of these EVILS: Entrenchment, Cronyism, Quid-pro-quo'ism(Eg: I'll be loyal to CEO because he nominated me to the Board), Self-Aggrandizement, Conflict of Interest/Self-Dealing, Lack of Earnestness and Lack of Fairness. Please take the PLEDGE of ETHICS that you will TRASCEND the aforementioned behaviors and truly surrender yourself in the SERVICE of ALL your Shareholders At ALL times by signing the below form


Sincerely,
Shareholder





 If you are a Shareholder and you would like to petition a particular Board member in your company to take this pledge, fill this form link. 
If you like the idea of 'Pledge of Ethics' or 'Shareholder Day', please share this post.



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Sunday, April 26, 2015

Stocks DD Opines: Investor Relations and some Best Practices


Read, understand and consent to the blog's DISCLAIMER here before proceeding to read the article

Additional Disclaimer: This is a general article and no references is intended to any company.

What is Investor Relations  ?
National Investor Relations Institute defines IR as "A corporate marketing activity, combining the disciplines of communication and finance, providing current and future investors with accurate portrayal of firm's performance and prospects, thereby having a positive effect on total value relative to the overall market and the firm's cost of capital."

I would use the word Fair in lieu of Positive. I would also use word Price in addition to Value because of the following: What if the company has decided they are never going to raise capital again in the market ?

What does IR Best Practices involve ?

It primarily involves the following:

1. Quarterly Conference call with all stakeholders on Earnings, Outlook & Mid/Long term Strategy with adequate time for Q&A.
2. Annual attendance in a few Investment Conferences where fund managers and analysts go and where market peers present. After all, capital assets with similar risks(same sector) are often rated relative to one another by same market participants (Same Intermediary analysts and Mutual Funds).
3. Conducting Annual Investor Day with interactive Q&A with all stakeholders
4. Ensuring information on risk, 2-3 year outlook of business & high level strategy is provided (without disclosing commercially sensitive information)
5. Ensuring adequate number of analyst firms cover the stock.
6. Ensuring IR team is quick and responsive to existing or future investor information requests


All the 6 pieces are required so the risks and the outlook of the business are clearly known to as many market participants (including intermediary analyst firms) to ensure proper valuation and liquidity relative to other similar capital market assets . Ultimately, valuation is based on perceived risk on business outlook (not just past performance) in relation to similar capital market assets (peers). If adequate information is not disseminated, then likely the company will have less following by analysts, investors, less independent opinions on outlook,  leading to potentially reduced liquidity and an improper valuation. Free sharing of Information in adequate channels aids in price discovery. 


An example for disseminating Risk and Outlook information objectively ( point 4 above, without giving away anything to competition) is demonstrated in this below slide. Note this information DOES NOT have financial guidance.



Financial Guidance



Examples of Annual analyst or Investor Day presentations can be seen here

Annual Investor Days is a great forum to showcase the business, risks, juxtaposition of risks and price with similar peers, outlook, strategy and how the company intends to add value to shareholders both in the mid term as well as in the long term. It is meant for market participants which includes Mutual Funds, Pension Funds, Hedge Funds, Analyst firms and Individual Shareholders. Investor Days could be a 2 way exchange of information. Shareholders could share their ideas of enhancing and protecting shareholder value with the management and get their feedback.

Investment Conferences
  • Barclays Global Heathcare Conference
  • RBC Global Healthcare Conference
  • J.P. Morgan Healthcare Conference
  • Goldman Sachs Healthcare Conference
  • Morgan Stanley Healthcare Conference

Summary - Robust investor relations practices  is needed so there is adequate information sharing, transparency and thus ensuring the integrity of the capital market system.

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Wednesday, October 8, 2014

Stocks DD Opines : A ruling in the Banana Republic creates a brouhaha and How will Ball Street Journal editorialize it ?


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Manshattan is submerged by a Flood, a huge calamity. Huge loss is anticipated and there are no private financiers. Anticipating an Armageddon, the Banana Republic Govt writes the HERO law on Manshattan and takes over to support and salvage the properties, in return for a 10% stake in all the private properties in Manshattan, including the private penthouse of a Ball Street Journal reporter. 2 months later the Floods subside and things start to look significantly better. Private financiers are available. However the Banana Republic is beset with its own deficit problems. The Banana Republic govt, in its wisdom, uses an egregiously outdated Manshattan Flood forecast and says we anticipate more money for flood support and hence we will take 100% ownership of all private properties in Manshattan (including BSJ's famous reporter) and all owners of private homes in Manshattan now immediately become renters of the same. Moreover the Govt does not talk to Private financiers who were willing to finance the flood recovery at significantly lower cost.
Manshattan ex-home owners(now renters) file a suit in the Courts of the Banana Republic alleging theft of their homes by the Banana Republic Govt. The Judge presiding over the case rules the HERO law gives Banana Republic Govt the right to 'hero'ically throw out the constitution including the private property rights and No Banana Republic court could even hear the case as guaranteed by the 5th amendment of the Banana Republic's constitution. The Ball street journal Reporter whose home has just been siezed by the Banana Republic, has been told to write a story on this  ? 
What will the Ball street Journal reporter write ? 

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Friday, August 29, 2014

Stocks DD Opines: An investment methodology


Read, understand and consent to the blog's DISCLAIMER here before proceeding to read the article
Disclosure: I am NOT a registered investment advisor. Investing in stocks is very risky. Please consult your RIA and read all the disclaimer here.

Invest in quality stocks
1. Invest in Strong businesses (high barriers to entry and historically less competition) 
2. Invest in Management with excellent track record for shareholder value creation. 
3. Invest at undervalued prices

Invest in special situations 
1. Firms in temporary Distress 
2. Drug development firms, with an asymmetric reward/risk...where you have strong conviction on an event (Eg: Clinical event). For example, reward could change valuation by 6 times and risk could shave it by 50%. 
3. Firms with huge growth potential but growth is not factored in the price today. (Eg: MMYT 2 years ago)

Where to scout for ideas ?
1. Look for the stocks that the best Funds (that have a good 10-15 year return history) have recently increased position and is in their Top 5 of their portfolio. You can see this in whalewisdom
  • Pershing Square
  • Carl Icahn
  • Baupost
  • Perceptive Advisors
  • Baker Brothers
  • Greenhorn
  • Orbimed
2. If fundamentals have not changed since these funds took their huge positions, research their stock thesis, if publicly available. Activist funds generally publish their thesis. (Avoid shorting as it entails limitless risk)
3. Read the stock coverage in Seeking Alpha including comments
4. Listen to 2 years of Conference calls from Management to get a sense of business and management. Does management sound and act honest and accountable to shareholders and are they dedicated to shareholders.
5. Go over their last 2-3 years of 10-K's and 10-Q's (esp Business, Management outlook, Risk Factors)
6. Look at stock chart to understand how it has reacted to news/business fundamentals
7. Try to develop the bull thesis. Make sure it is not value trap (look for business trends, governance risk, dilution risk, etc) before buying.
8. Sell purely based on valuation, or if a better investment comes along. Good businesses with management having a track record for shareholder value creation can remain in the portfolio even if they are fairly valued.
9. Have a concentrated portfolio
10. Frequently engage with management of the stocks you own. Ask them, "how they plan to improve shareholder value?" Provide ideas or solutions to improve shareholders value. Compliment them, if they have done a good job for shareholders

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Wednesday, August 27, 2014

Stocks DD Cites: Could Fannie Mae relist in NYSE?


Read, understand and consent to the blog's DISCLAIMER here before proceeding to read the article

http://seekingalpha.com/news/1955705-fannie-mae-job-listing-sends-stock-higher

The GSE job posting that caused this speculation. This could be a red herring (one never knows).
->Link
->Link
Keep in mind, shareholders like Fairholme have rightfully asked the Fannie Mae Board of Directors to re-list the stock in NYSE. Link

It is my opinion relisting is very significant, if at all it happens. Remember most mutual funds and index funds are barred from investing in a OTC stock. 

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