Reading is Fundamental (RIF) is a 50-year-old organization that has distributed more than 40 million books to children nationwide in order for them to read, learn and grow. It is also a message for investors.
A recent blog post in The Wall Street Journal looks at an investment fund manager who has taken on the task of reading the annual reports of the 3,000 largest corporations in United States. Penned by Jason Zweig, the post takes a look at Geoffrey Abbott of New York City–based CGA Capital and his quest.
Most importantly, he’s going to read the annual letters from CEOs appearing in each one of these reports. According to the WSJ blog post, Abbott says: “I’ve been flabbergasted at how low the average quality is.” The real purpose behind his quest is “to discover promising companies he might not have noticed by other means. He wants to see whether the managers are focused on the long term, care about investors, and can clearly explain how the business makes money and how they measure its progress toward their goals.”
Echoing this sentiment, according to the WSJ blog post, is Warren Buffett who states, “Over the years, there have been multiple times” when reading the annual letter “has been a factor in my deciding to do something or not to do something.” And we’re not likely to find as savvy and investor as Mr. Buffett in our lifetimes.
What does this say about how fund managers are approaching their investors and how they are presenting themselves in the best possible light to bring these investors on board?
And who is really writing this copy? Is it truly coming from the CEO’s mind, heart and intention? How often is this part of an annual report, pitch book or brochure written by committee (compliance departments notwithstanding)? Is that the message a company wants to impart when going to market? What more can be brought forth through true connection with the existing and potential investors?
On the other side of the table is the investor whose sole responsibility is to divine the proper investment for their real estate asset allocation. How many can absolutely say without a doubt, “Yes, I’ve read the letter through and through”? Perhaps fewer than you might think.
Interestingly, Timothy Loughran, a finance professor at the University of Notre Dame who studies corporate disclosure, has analyzed computer records for the Securities and Exchange Commission’s filings website. He says only 29 people a day download the average annual report when it comes out. Even General Electric’s annual report was downloaded from the firm’s website only 800 times in 2013, reports WSJ.
To drive this point home, at the end of 2013, General Electric had 10 billion shares outstanding. Perhaps getting back to fundamentals such as reading the materials readily at hand could be a great place to make even better informed investment decisions. Can’t hurt, might help.
Not a subscriber to IREI Insights blog? Sign up to receive alerts on new blog posts.
Jonathan Schein is senior vice president and managing director of business development at Institutional Real Estate, Inc.
