Talking to Management, Part 5: Understanding Major Shifts

Summary

The difference between my approach and the approach of most analysts is that I think about the business and its strategy rather than the next quarter or year's earnings. My methods probably won't help you make money in the short run but will help you make money in the long run as you identify intelligent management teams that understand how to compete for the long term, rather than those that can manage only next quarter's GAAP earnings.

Two additional side benefits to doing it my way: First, the management teams will like talking with you. I can't tell you how many times managers have said they appreciated my businesslike approach to analyzing their companies. Second, it will translate back into an improved understanding of the business you presently work in, as you think about strategic issues there.

Key Points:

• Management needs to be in touch with changes in technology, culture and regulations.
• Flesh out competitive strategy by asking about acquisitions.
• These questions take the long-term view, unlike most analysts' quarter-focused queries.

Editor's note: We're pleased to present David Merkel's five-part series on questions to ask the management of a public company. Be sure to read Part 1, Part 2, Part 3 and Part 4.

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