Meeting with management
Miller suggested that meeting with a company's management is not very valuable in the shorter-term as its focus may be skewed toward putting a positive spin on results. Plus, management is very constrained in sharing information because of regulations such as "Reg FD" that prevent the selective release of information to certain investors. Miller believes management will rarely, if ever, tell investors when things are going badly. What incentive does it have to do so?
However, he does believe that meeting with management can be valuable over a longer time horizon -- say three, five, or 10 years. From management, an investor can learn a significant amount about business and competitive dynamics, important parts of the evaluation process. Overall, he advised that it's best to learn as much as you can about a company, so learning directly from management can be worthwhile.
Miller provided an example of a beneficial meeting with the CEO and founder of Amazon.com (NASDAQ:AMZN), Jeffrey Bezos. He stated that during a discussion, Bezos stated that he was finally able to focus on serving customers rather than stressing to maintain sufficient capital to run his business. While the comment, taken at face value, was not overly insightful, Miller took it as a positive sign that Bezos had become less worried about survival and had switched gears to playing offense instead of defense. He then reiterated the importance of gaining long-term insight.
Outside research
The moderator asked Mr. Miller if he reads broker or sell-side research. He stated that he used to read quite a few market commentaries by the top brokerage firms but today reads little outside research, including company-specific publications or market outlooks. He might read the daily news if there's an event he finds interesting but believes the incentive structure for the sell-side is different, as it is based toward the short term.
He did recommend paying close attention to the semantics of an analyst. For example, an analyst writes using words such as "hope" or "feel," which may not be a very confident sign in a company's outlook, as compared to words like "think" or "confident." Again, any insight helps.
A current stock idea
Home Depot (NYSE:HD) is a stock Miller owns. He summarized recent company developments, which include negative sentiment on CEO Bob Nardelli and a stock that has stunk over the past five years. Yet the company is performing soundly from an operational and financial standpoint. I asked him whether he was concerned that current and former employees are fuming at the company, as are a number of shareholders, because of the annual meeting debacle. He detailed that Jack Welch stated that he considers Nardelli one of the most astute operators out there, but that doesn't mean he isn't susceptible to public relations disasters, as the market just witnessed.
Advice for picking a manager
An audience member asked Miller some of the biggest mistakes institutions make when hiring outside investment managers. He explained that one of the biggest problems is overweighing recent manager performance. He said placing too much emphasis on near-term events is a psychological bias of most people and reiterated that he prefers a long-term bias (launches pdf file) to investing.
Foolish parting words
Miller mentioned that certain individuals, himself included, firmly believe that reading Benjamin Graham's classic books, including Security Analysis and The Intelligent Investor, as well as Berkshire Hathaway's annual shareholder letters, will teach an individual all he or she needs to know about investing. The wild card is actually understanding all that is read.
He also offered the advice of Walter "Puggy" Pearson, a well-known poker player whom Miller holds in high regard. Miller says investing is summed up well by Puggy's three tenants for successful gambling: "Ain't only three things to gamblin': knowing the 60/40 end of a proposition, money management, and knowing yourself." To know the "60/40" end of a proposition implies identifying when the odds are in your favor. The second part is to know money management, or the appropriate amount to commit to your bet. Finally, you must know yourself, or how you react to certain situations, including adverse or challenging circumstances.
It sounded so straightforward coming directly from a money master. As the moderator ended the discussion, he commented that all great investors are focused, disciplined, and comfortable treading where most others are uncomfortable. I suppose the reason so few come close to matching the legends is the difficulty in succinctly and consistently putting all of the pieces together into practice.
Thankfully, Miller loves to share what he's learned over the years. Taking them in and using Miller's Foolish ideas will help you become a better investor. To get the complete set of info from Miller, check out Parts 1, 2, 3, and 4.
Amazon.com is a Stock Advisor recommendation, while Home Depot is an Inside Value selection. Take the newsletter of your choice for a 30-day free spin.
Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email Ryan with feedback or to discuss any companies mentioned further.
