SIMON BROWN: Act like an owner — get involved and go there

As shareholders we tend to focus on results, CEO interviews, share price movement and dividends. Sure, we also care about the actual company and how it makes money. But do we really focus and investigate the business?

Imagine you owned a coffee shop which was fully run by a manager. In other words, you could sit back and collect the profits every month. You’d surely still visit every now and then to ensure that the business side of things was going well, not so?

We need to do the same with our investments, where possible.

In 2010 I held Famous Brands. It bought the Keg and McGinty’s chains of gourmet pubs. I hadn’t been at one of its branches in years, so decided to pay a visit to my local Keg.

What I experienced was that the beer was cold but the décor was tired. And while the menu looked exciting, the food was average.

I tried a few other outlets over the next couple of months and got the same feeling there. In other words, this deal was not a game-changer for Famous Brands, and would not be one unless it spent money fixing it up. A year later another visit confirmed things hadn’t changed much, and if I recall the company eventually sold the chain.

When I used to travel a lot and owned City Lodge shares, I would sometimes stay at a City Lodge to see how it was. The hotels were generally not convenient for my trip, but the focus was on understanding the business.

Now, we have to also be careful; a bad experience may not be the story of the entire business. That is why I’ll try many different locations to get a better sense of the company. Also, it’s worth remembering that you may not be the target market for the business and you need to see it through the eyes of the target customer.

Of course, one series of bad experiences did tell a tale, and that’s Pick n Pay. A few years ago I started to ask people about their experiences. They all moaned about surly staff, long queues and tired-looking stores. Not one person had a positive comment. And we now know how that ended.

The flip side is also that even a great experience may not mean a great investment. Investing is also about the cash flow, balance sheet, debt and the like. So one good experience shouldn’t make you rush off to buy a share. But for those shares you hold or are keen to buy, it is very useful to keep an eye on the operational side of things.

There are, of course, many we can’t visit, such as mines, but in these cases we can just focus on the commodity demand and the company’s cost of mining it. Some sectors are generally just disliked by everybody but are essential. Nobody loves their bank or telecom service provider, yet they both make money and we all have a bank and a telecom account.

So get involved, make site visits a part of your investment strategy. But be aware of your biases.