President, Investment, Fidelity International When executives start clamming up and start
giving less information than they did previously,
says the President, Investment, Fidelity
International, that’s the time to get worried.
We use a variety of techniques to analyze the businesses we invest in at Fidelity – but one to which I have always attached great importance is the company meeting. A company meeting is a regular update that always takes place at our request, typically happens every six months or so, and involves a dialogue between our investment managers and analysts and the senior management team of the company.
The success of our approach depends – in good times and, perhaps especially, in bad – on the openness of this dialogue. If companies are not able to answer every question they should be honest and say so. They may have a high caliber management team but if they are not straight with us in meetings we are unlikely to make, or retain, an investment.
Over the last six to nine months, certain banks have tried to maintain investor confidence by putting out a positive message about their capital requirements and their underlying financial health. These subsequently turned out to be wrong, or even misleading, and people have frankly felt let down. When companies lose the confidence of their investors they can find it very difficult to regain it.
I am certainly not saying that executives should admit to having no clue, however uncertain the future. The current economic crisis might be one of the worst any of us has seen but no one can say it was unexpected. I have experienced a few downturns which did creep up quietly – you only realized you were in them once it was too late – but this is the most clearly heralded I have known.
That means companies should have contingency plans in place. They may not know where things are going, but as an investor you want to know what they will do under a range of different outcomes – and their fall back position if things get really bad. You want to be sure that they have thought about this in advance and that they are prepared. Companies in the current circumstances should not be thinking about handing down forecasts to the market place cast in stone; they should think of themselves as a group of people seeking to demonstrate that they can manage their businesses well in fluid and challenging times.