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As investors and shareholders, we tend to focus on results, numbers, profits, ratios... and so the list goes on. But what’s the one thing missing from that list? The business.
We forget that being a shareholder actually means we own some of that business and a business is a lot more than numbers and ratios. We of course need to understand the business and if we can’t, we shouldn’t invest in it.
But this brings me to the point: site visits. Think for a moment, if you owned a chain of pizza restaurants, even if you had management in place running them, surely you’d visit them every so often, to try out the pizza and service? So if you own a JSE-listed business, are you doing site visits?
The idea started many years ago when one of the stocks I owned invested in a chain of bars and I jokingly suggested to a friend we go for a site visit to one of the bars. In short, an excuse for drinking beer.
But we actually took it seriously and, sure, we drank beer, but we also looked around as owners. We were not very impressed with this branch, so we visited another four bars from the chain over the next few weeks and remained unimpressed. The menus promised a lot but the food was average. Service was slow and the fittings were tired. We decided that, while some bars make great money, this chain was not life-changing for the parent company we owned stock in.
This didn’t see us rushing out to sell, but it did temper our expectations of what this acquisition could add to the overall business.
Another example: last week I stayed at a City Lodge*. I travel a lot but seldom stay at any of this group’s hotels. I was impressed; small things like having to pay for the newspaper in the morning fitted very well with the low-cost culture. The room was surprisingly large and well-appointed.
Overall the hotel did not look or feel cheap, yet charged half the price the competition across the road was charging. This is exactly what you want from a budget hotel. Now, make no mistake, the Road and Town Lodges that City Lodge also offers are a very different story and I will try one of them on a future trip.
But I came away very happy with the company I owned, confident that it has not only kept to its mandate of low cost, but that it is also doing this very well.
Now sure, one good or bad experience doesn’t reflect an entire business, especially one with many branches. In truth it is largely anecdotal evidence but it does give you insight and, importantly, it makes you feel like an owner – and that’s the core part of investing, we actually own businesses.
Of course, with some companies you won’t be able to go on site visits.
For example, a mining company is unlikely to let you visit and go down a mineshaft. But in the case of a consumer-facing business, you absolutely can do this and you absolutely should. View it as more than just a shopping (or beer-drinking) experience.
Spend some time looking at the business just like an owner of the business would. What do you like? What don’t you like? Does it fit within the logic of why you bought the share in the first place?
If it doesn’t, you can write to the CEO with suggestions, but if it really doesn’t meet expectations, maybe you have a misplaced investment and should consider exiting it.
*The writer owns shares in City Lodge.
This article originally appeared in the 18 February 2016 edition of finweek. buy and download the magazine here.
