Why I Don’t Attend Annual General Meetings: Public Displays of Corporate Fluff

In a Perfect World

In a perfect world, it would make perfect sense to attend the Annual General Meeting (AGM) of a company you’re invested in.  

In a perfect world, if you asked difficult questions at the AGM, you would not be faulted. You would not be instructed to find drinking water – at the toilet.

You would not be sued for raising hard questions.

In the perfect world, AGMs are where directors and CEOs come clean about not knowing what they were doing – even if it means being replaced and blamed for poor business performance.

In the perfect world, Board of Directors and CEOs tell you their plans for expansions while telling you about the risks.

In the perfect world, AGMs are where the executives share an objective analysis of its earnings and how it has fared this year – including how it will fare going forward.

In the perfect world, AGMs are where the executives of the company tell you whether they have plans to turn losses into profits. Where they tell you your expertise and trust in them is valued. Where they seek help from you if you are an industry expert.

In the perfect world, AGMs are filled with debate, plans, and intent – all for the good of the company.

In the perfect world, AGMs both inform you of the good and the bad. They won’t tell you that they marked up the book value and added it under “revenue” or “earnings”.

In a perfect world, they tell you why they took up loans to buy back shares when they had plenty of cash.

In a perfect world, they explain why capital expenditure was so high it broke the bank.

In a perfect world, things would make perfect sense.

We Do Not Live In A Perfect World

We live in a messy, chaotic, capitalistic world – where the lack of financial literacy can mean you suffer a severe disadvantage.

We live in a world where you can’t ask hard questions. Only decide whether to Buy, Hold, or Sell.

We live in a world where a company would is able to report its revenue as 400 million, yet earnings was somehow only 20 million (I won’t disclose which company this is).

We live in a world where failing, unprofitable companies can somehow manage to get auditors, and banks to help them raise public bonds and issue perpetual securities.  

We live in a world where CEOs and Directors pay staff below minimum wage, and we live in a world where CEOs travel in private jets then bring one more as a spare.

We live in a world where a company can choose to not disclose its earnings under a certain product when it is not advantageous to do so.

We live in a world where construction companies in China can step up their valuation of their land and list it under their revenue – all before even selling it.

We live in a world where we have more questions than answers, no way to get the information we seek, and no legal recourse.

We live in a world where our votes at an AGM mean nothing  – because a majority of the time, we will hold very little of the votes compared to the company’s executives and CEO.

You’ve Made Yourself Heard In The AGM, So What?

Lafe AGM Incident:

Several years ago, we invested in an undervalued stock called Lafe.

It was a simple stock to analyse as it had only a high-end condo development on Emerald Hill (near Somerset MRT). It cost about S$1,650 per square feet but the shares were pricing at a severe discount at about $300 psf. So we invested it despite the property cooling measures being implemented.

Alvin attended the AGMs in 2015 and 2016 and below details his encounters

I had never been to such a rowdy AGM. I kind of wished I had brought along popcorn to enjoy the show. Shareholders were extremely upset and were ballasting the management from the start to the end. Led by a furious lady shareholder, she was practically on the mic voicing the discontent on behalf of the other shareholders.

Her main message was alluding to incompetent management as shown in the share price and the inability to sell the properties at Emerald Hill. The management was calm and sat there to be scolded. They just wanted it to be over so that they could get back to bossing their employees.

I always find AGMs weird because it is the only time where retail investors who are mainly employees, tell the management who are businessmen, on how to run their business.

It is so easy for the management to dismiss comments and suggestions during AGMs because of the power gradient – they get to do whatever they want regardless of shareholder dissent.

I wouldn’t be surprised if the reason they held the AGM was because it was mandated by law.

A year has past and I went for the 2016 AGM (I still didn’t bring along the popcorn) and saw the same group of investors complaining about the same thing. Nothing has changed. We eventually sold the stock because the Chairman’s wife couldn’t pay for the acquisition of the unsold property. I don’t know about the rest of the shareholders, but I think they held onto the stock despite their unhappiness. We admitted our mistake and moved on but the rest probably didn’t.

They didn’t want to sell because it will realise their loss. It isn’t the wisest thing to do. It is bad for wealth and health.

In the end, they had no choice because it was delisted for pennies on the dollar.

Kingboard Copper AGM Incident:

A less rowdy but still unfriendly AGM was with Kingboard Copper.

The management was hoarding cash and refused to give dividends because they wanted the shareholders to agree to the proposed Interested Party Transaction (IPT) that involved the chairman. It was a stalemate for several years and the profitable company had its cash piling up. The share price was below the amount of cash the company had!

All the shareholders grievances poured during the AGMs fell on deaf ears. It was only until a fund sued the company in Bermuda that the share price started to move. This only goes to show that if individual investors are pretty powerless to move things, we need investors with large capital to mount a credible threat to the management in order to shake things up.

We made a small 24% gain on this stock and it could have ended even better when the delisting offer came at a much higher price – Kingboard Copper’s $0.40 Cash Offer – To Take Or Not To Take.

How About Just Buying Good Management?

Maybe you are thinking that we shouldn’t pick out the bad management as examples. There are good management in this world so why invest in badly run companies in the first place?

What people fail to consider is that good management is hard to come by and the best of all would be Berkshire Hathaway’s.

Shareholders around the world clamour and congregate in Omaha to hear from the Oracle each year.

While Buffett and Munger define the ideals of a good management, they wouldn’t be disclosing material information during the AGMs that you can act on.

They do impart wisdom (if you’re lucky) but that’s all you are going to get.

Likewise, if you happen to believe the management is a good one, they still wouldn’t be able to give you privileged information. They will say very generic stuff during the AGMs and leave you with a lot of room to interpret.

How useful is that?

Hypothetically let’s say you got a piece of material information and you acted on it, you might be charged with insider trading.

You are unlikely to get actionable information during the AGM. And if the information is so good, you cannot use it.

Either way you lose.

The AGM is a show. The management is obliged to do it by law.

Given a choice, they wouldn’t waste time or resources on it.

They’ve got better things to do than to answer questions like “why dividends so low” and “why food so little”.

It is a game of perception and the management who can put on a good facade can trick a lot of investors.

Try asking Elizabeth Holmes or Bernie Madoff.

Learning Lessons For You

The ultimate reason for investing is to make a profit.

We’re not in this for shits and giggles.

If the objective is to make more money, then rationally, we should arm ourselves with the ability to better distinguish between good businesses to invest in and bad businesses to avoid.

So why distract yourself with attending AGMs?

• Will the AGM tell you if their cash flow has been negative for the past 5 years?
• Will the AGM tell you if the directors of the company is being fraudulent?
• Will the AGM tell you if the directors of the company are manipulating market prices unethically?
• Will the AGM inform you that the directors of the company have been misspending money? Treating the company’s accounts like their own?

The answer is no, but the financial statements of a company sure as hell will if you know how to look!

In fact, to attend an Annual General Meeting, you will first need to buy a share of the business!!

Deciding to buy a share of business before investigating the business’s fundamentals in order to attend the AGM is like hoping the meal is ready without having to cook it.

It is folly.

Investing in yourself is far better.

That’s why we focus on the ability to read financial statements and understand businesses in our Factor Investing course. It’s why we focus on reliable numbers. Not unreliable words.

If you believe in the same, you can click here to find out more about Factor Investing.

What do you think about AGMs? Do you think it’s the right idea? What is your experience with it? Is it helpful or just another show?

Share it with us!