Do you invest in bad companies with bad management and do no homework?

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Do you invest in bad companies with bad management and do no homework?

Early in November a portfolio manager from a large institution held a national online seminar for investment advisors from all corporations. This was their chance to hear from what is reported to be one of the pre-eminent Portfolio Managers (PM) in the country. This portfolio manager has a rock star persona in the industry, but I wanted to do my due diligence before even considering investing, as I have never used any of this PM’s products in the past. I decided to participate in the online conference seminar even though our office was having an interactive conference call directly with the PM later in the month.

I wanted to hear what the PM had to say, giving me time to think of any questions I would want to ask in our meeting. We insist on an active dialogue with the PM before investing in any fund.  You learn more about them during the question and answer period than at any other time.

Do they invest in bad companies, bad management and do no homework?

The fund’s promotional page stated the fund is a US Equity fund that buys small, medium and large cap equities using a value strategy. This was repeated in the national seminar and the usual statement that they only deal with good companies, good management and they always do their homework. I have been hearing this since the mid 80’s by all firms and is stated at all seminars. I am dying to hear someone tell us they only invest in bad companies; bad management and they don’t do any homework.

Dividend only

During our interactive meeting the PM stated that the real comfort level is in small and mid-cap stocks that have a lot of international trade. As we went through the discussion we were asking about specific holdings and noticed the word dividend was being used in every answer, only to find out that the fund will only invest in dividend paying stock (most dividend stock funds do allow themselves to invest in a percentage of non-dividend paying stocks if they are at the right price, this can help provide extra growth). This wasn’t discussed in the national conference. Most dividend stock funds are called this as they can flow the dividend out to the client. We do need to know the distinction.

No Tech

We noticed there were no technology stocks in the fund. This often happens when a fund only buys dividend paying stock. Our answer was that the PM did not understand tech stocks and stays away. WOW was that a surprise answer. That means as tech stocks start to pay dividends, as some already do, they will not be considered in the portfolio.

I will be interested to see this fund perform when the pendulum swings from the current value bent of the markets to a growth bent. It has only been in operation for just over a year. The PM’s Canadian version has been around for over three years and has performed average at best against its peers.

Here is the difference between the national seminar and our interactive meeting:

Seminar                                                      Meeting

Small, medium and large cap stock    -      Small and medium focus
Any value US stock                                 -      Heavy ean to international trade
Dividend paying is favoured                 -      Only Dividend paying
No talk about avoiding sectors             -      No tech stocks         

We were able to dig deeper because we are full service advisors who also have direct stock holdings with our clients. We research and recommend buying and selling equities to our clients and we can tell if we are being handed the company line or the real facts. We can tell a proper buy and sell strategy from a seat of their pants or following the herd strategy.

We also have the advantage of being a large independent group of advisors who work together. We have the clout to directly meet with Portfolio Managers and we have the want to know everything about the products we recommend to our clients.

Over the years, this may end up being an excellent US small/medium cap, dividend only equity fund that has a value strategy, leans heavily towards International trading companies and carries no technology; but when I am looking at crafting an individually designed portfolio for a client I need to know all these facts, not just the glossy overview brochure and information from a national seminar.

Regardless of this manager’s long term history in the industry, I would not buy a fund with only a one year history. I was more interested in the PM’s thought pattern and strategy as there are 14 fund mandates in this PM’s stable of funds.

If you want to see what a truly independent advisor can do for you, call me at 905-846-9060, ext.3838, email me at or visit my website at