Hedge Funds Meet With Companies

Bloomberg

a day ago

If you are trying to decide whether to buy the stock of some company, one thing you could do is sit down with its chief executive officer and ask her: 'Should I buy your stock?' This probably won't be too informative: For reasons of incentives (her wealth is tied to the stock price) and general CEO optimism/confidence, she will almost certainly say yes. 1 But you can ask follow-up questions. If you say 'okay, you think I should buy your stock, does that mean that you will have a good profit next quarter,' and she says 'no,' or 'define good,' or 'oh look at the time I gotta go,' or if she says 'yes absolutely' but starts sweating and looking around nervously, then perhaps those are useful indications that you should not buy the stock. And if she looks you in the eye and says firmly 'it's gonna be amazing, ' go ahead and buy it.
This is a little bit fanciful, but not that fanciful. CEOs do regularly meet with investors, and the investors ask questions and the CEOs answer them. In the US, securities regulations prohibit the CEOs from disclosing material nonpublic information in these meetings, so in theory, if you ask the CEO about next quarter's earnings, she shouldn't tell you anything the company hasn't already said publicly. In practice, though, these meetings do happen, which suggests that investors get some value out of them. And empirical studies find that, as you'd expect, investors who have meetings with CEOs make more informed investing decisions. They're definitely learning something in the meetings.