Our team is currently in the thick of “earnings season” following the second quarter of 2023. Within the span of two weeks, we will digest more than twenty-five companies’ financial results along with operational and strategic updates from senior management. The remainder of companies held in client portfolios will either report in the subsequent weeks or follow a non-standard fiscal year.
After the conclusion of a quarter, each company takes steps to communicate its performance to the investing community and other market participants. Some steps are required by the Securities and Exchange Commission (SEC), others are voluntary. It is a requirement that companies file a Form 10-Q with the SEC following the conclusion of their fiscal quarter (the deadline for that filing can vary but most are filed within forty days). Form 10-Qs must contain the filing company’s condensed financial statements, management commentary, risk disclosures, description of litigation, and sale of securities, among other relevant information. In addition to the requirement of filing a Form 10-Q, companies frequently distribute and communicate additional information about the company in various formats and media. For example, companies almost always publish a press release with highlights from the quarter and written commentary from company management, usually release a presentation, and (hopefully) host a conference call where management describes the company’s recent performance, and the investing public may ask questions about the company in real time.
How an analyst or investment team approaches a company’s earnings release can vary widely by investment style and approach. At one end of the spectrum, analysts may quickly read a company’s press release, review headline financial numbers and relevant company-reported operating metrics, and then skim a selection of sell-side analyst reports when they are published.
At the other end of the spectrum, the end on which our firm resides, all publicly available material produced by the company is reviewed and thoroughly evaluated. Importantly, this includes reading every disclaimer, table, and footnote in each Form 10-Q, a filing that is a treasure trove of information – some of which is not easily synthesized into a report or picked up by automated third-party databases (even more important are the relatively lengthy Form 10-Ks which are filed annually and have more robust requirements on what information must be included). In addition to the 10-Qs, our team continuously monitors all other SEC filings (Form 3, Form 4, Form 8-K, Form S-8, Schedule 13G and 13D, and Schedule 14A, among others) and evaluates their impacts on our investment thesis.
After a company’s quarterly materials have been filed and/or published to the public, all members of our team read the material and our internally maintained file on the company is updated. Only after that do we meet as a group to discuss the business and develop a list of questions that persist after our collective due diligence is completed. We then pose our questions to senior management via an in-person meeting or video call and, to the extent that Reg FD (Reg FD relates to fair and evenly distributed disclosures by company representatives, first codified in August 2000) allows disclosure, their answers enable us to better understand the details of the company’s financials and operations. We then conclude our quarterly review process by establishing an up-to-date appraised value of the business on a per share basis and memorializing our rationale in writing for future reference.
There are no two ways about it: our process takes time. Some parts of the process are relatively simple. For example, finding easily understood information in a footnote is low hanging fruit if one takes the time to read the entire filing. Other parts of the process are complex, such as developing an in-depth understanding of foreign accounting rules regarding capitalization of intangible assets. In each case, it takes time to fully comprehend the facts as well as the concepts that underpin them.
At the heart of our approach is the pursuit of a singular and complete understanding of a company’s financial situation and operations. As investors in public companies, we receive limited information compared to the full set of data that is available to management. Accordingly, we must take complete advantage of the information that is made publicly available to us by reviewing every filing or release carefully and spending the requisite amount of time to consider its impact on the investment. We call this level of analysis our “information advantage” because it is in contrast to many other public company investors who, by nature of the large amount of securities they hold in a fund or client portfolios, cannot spend hours considering the details of each investment every quarter. This information advantage allows us to mitigate the impact of unknown risks and take full advantage of our high level of conviction in a limited number of our best investment opportunities.
Another core principle of our approach is to fully understand a company’s past and present financial and operational performance before we attempt to quantify future performance. In reading or listening to financial media, one will note that much time is spent pontificating about what a company will do in the future and how its stock (or bond) will trade. What is rarely mentioned is the amount of time it takes to learn about and understand a company, which is a necessary precursor to developing an opinion about its future. Media offers only an informed opinion, not a prophecy, regardless of the pundits’ credentials or well-distributed platform.
At MIAM, our research team spends every day gathering and analyzing the facts of each investment to build an information advantage and continue to develop an understanding of each company. The research process is detail-oriented and time consuming, but it is a process that has been honed over time and serves clients well over a long-term investment horizon.
We welcome inquiries into our process and are always excited to share more about it or discuss a specific investment in more detail. If either is of interest or you would like to partner with MIAM, please reach out to our client advisory team or visit our website at www.gvi-corp.com for more information.
The MIAM Research Team
This document is published by Milwaukee Institutional Asset Management (MIAM), a division of Global Value Investment Corp. (GVIC). MIAM is the institutional investment advisory division of Global Value Investment Corp., providing investment advisory services to institutional investors including Registered Investment Advisors and Broker-Dealers. All statements or opinions contained herein are solely the responsibility of Milwaukee Institutional Asset Management. The material, information and facts contained in this report were based on publicly available information about the featured company and were obtained from sources believed to be reliable but are in no way guaranteed to be complete or accurate. This report is for informational purposes only and should not be used as a complete analysis of any company, industry or security discussed within the report. This report does not constitute an offer or solicitation to buy or sell any security, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. An investment in any security referenced in this report may involve risks and uncertainties that could cause actual results to differ from the analysis provided herein, which may not be suitable for all investors. Past performance should not be taken as an indication or guarantee of future results. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. Employees of GVIC may have positions in securities referenced in this report. ‘Intrinsic’ or ‘Appraised’ value refers to MIAM’s quantitative and qualitative assessment of the value of an enterprise. Market capitalization is a measure of the total dollar market value of all of a company’s outstanding shares. Market capitalization is calculated by multiplying a company’s shares outstanding by the current quoted share price. MIAM’s investment strategies generally invest in a smaller number of securities than some other strategies. The performance of these holdings may increase the variability of a strategy’s return. There is no assurance that dividend-paying stocks will reduce price variability. Value investments are subject to the risk that their intrinsic value may not be reflected in market prices. For purposes of distribution in the United States, this report is prepared for persons who can be defined as “Institutional Investors” under U.S. securities regulations. Any U.S. person receiving this report and wishing to affect a transaction in any security discussed herein must do so through a U.S. registered Broker-Dealer. Neither Global Value Investment Corp. nor Milwaukee Institutional Asset Management is a registered Broker-Dealer.
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