FEATURE — When my son Jayden was only 8 years old, he had his brother drive him to the department store to pick out a special gift for Father’s Day. From doing various chores he had amassed a little over $16 — a tidy sum for a guy his age. He was unselfishly planning on spending all of it on his dad. 

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While searching the aisles he saw a store employee lose her balance and then drop several picture frames to the floor. Being the sweetheart he is, Jayden set his stuffed Spiderman wallet on the floor and helped the girl pick up her frames. When he turned back, the money and wallet were gone. The smirking teenage boy standing behind him insisted he hadn’t seen a thing, though there was no one else around. The teen just laughed and walked away. Jayden was heartbroken. It was painful for him to learn that not everyone can be trusted. 

My years in this business have taught me many lessons about how to value companies and products for investment opportunities. I read financial reports, review statistical data and seek guidance from the analysts that I like. I have learned from experiences, good and bad, that in the end the most important piece of the puzzle is to work with good people. No matter how great the idea is, if I determine the people aren’t good or can’t be trusted, I will not be investing my, or anyone else’s money with them.

A common research practice in our industry is taking what are called “Due Diligence” trips. This is when an advisor travels to the home office of a public company to investigate it for investment purposes. If it’s a company we already invest with, the visit allows us to perform an ongoing review to try and determine if things are still on a good track. 

From my home office, I can go over all the financials of a business, but the purpose of a due diligence trip for me is to get to know the people involved. Not only do I quiz the executives and other decision-makers, but I also like to chat with the receptionists, bookkeepers and anyone else I run into. It is amazing the amount of information you can get from employees on the lower end of the pay scale.

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If a company is struggling, these people are usually the first to feel the squeeze, and they are often happy to share their concerns.  I have learned many things that might displease some corporate executives if they knew what their front-line employees had told me during those visits. 

On one particular trip, I was out to dinner with a company’s office staff. One of the data entry guys began drinking and the more he drank the more he spoke. We talked for a while about the banner year they had just experienced, and he laughed and said that sadly there were very few sales in the pipeline for the coming year and the employees were getting worried. That was all I needed to know.

I have taken many of these trips. My purpose is always the same. I want to get to know the people. Rates of returns, PE ratios, profit margin, etc. are worthless numbers if I cannot trust the people standing behind them. It takes a lot more time and effort than just reading a company’s sales brochure, but over the years I have found it to be time well spent.

All companies experience good and bad times. When things do get bad, as Jayden learned, it is very important to know who is standing behind you.

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