Let me give you an example from my recent AR studies instead. There’s a full thread on Intense Technologies on Valuepickr. Intense Technologies is another example of falling stock price as the stock dropped from nearly 250 to 130 recently. Nobody knows why it went up and came crashing down, but its still a value buy! I started wondering if I should buy it…picked up the annual report and read the first sentence from the MD. Here’s the excerpt:
Dear Stakeholder,
Digital Disruption is the status quo in 21st century:
- World’s largest online transportation network company owns no taxi- Uber
- Largest accommodation provider owns no real estate- Airbnb
- Largest phone companies own no telco infra- Skype
- World’s most valuable retailer has no inventory- Alibaba
A quick Google search showed that this is somebody else’s quote, not his original thought. He presents somebody else’s quote as his own observation. Watching some more videos of this MD showed me that he is probably ethical and a techie with in-depth knowledge of the enterprise product, but not leadership material. I felt he struggles to even complete sentences coherently. This stock may become a multi-bagger from here on, but I don’t like to go on long rides with incompetent management.
When reading ARs, I look for ethics from management. I always pay special attention to family members. How much are they being paid and for doing what? Look for related party transactions. Compare management compensation with peers in the industry. Read notes on ‘Other expenses’ and ‘Loans & Advances’. These are especially important for small cap companies. I also look for clarity from management. The management should focus on details of business and talk about their strategies. Not talk to too much about Brexit, economic macros, CSR initiatives etc. Too many phrases like “Dare to commit”, “Value through innovation”, “Inclusive Growth” etc. triggers my BS meters. Too much talk about company’s history and past achievements is also not good. Stock images in AR are another pet peeve.
I love this quote about leadership: Leadership is not about confidence, its about clarity.