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On January 18, 2024, I was once again able to connect with private/full time investor Tim Heitman via an Investor Insights Skull Session. We riffed back and forth on various topics including investing strategy, the utilization of models in investment analysis, approaches to conference calls and related transcripts as tools for post-earnings research, behavioral finance, document analysis, the analogies between personal life and investment decisions, using industry experts to more fully understand an industry in which potential investments reside, criteria to look for in multibaggers, and much more. Several microcaps, Noodles & Company (NASDAQ:NDLS), Tandy Leather Factory, Inc. (NASDAQ:TLF), Kewaunee Scientific Corporation (NASDAQ:KEQU), Virco Manufacturing Corporation (NASDAQ:VIRC), Limbach Holdings, Inc. (NASDAQ:LMB), Rcm Technologies, Inc. (NASDAQ:RCMT), Equator Beverage Co (OOTC:MOJO), Rocky Mountain Chocolate Factor (NASDAQ:RMCF), Koru Medical Systems, Inc. (NASDAQ:KRMD) and Educational Development Corpora (NASDAQ:EDUC), enter the mix of the discussion to supplement the various themes laid out in the interview. We also couldn’t resist and talked about our favorite Peter Lynch quotes, which you can find here.

Today, we are putting a spotlight on 2 parts of the Insights Skull Session that we found to be great material for this Weekly.

  1. Our approaches to and preferences regarding conference call and transcript research.
  2. The use of models when valuing stocks.

Tim likes to read conference call transcripts and pressed me on my preference for listening to live conference calls, where I explained that I he likes to listen and be there live, especially when dealing with nano-cap stocks because I can ask questions while on a call that may have a very limited amount of listeners and attendees. This allows me to get what amounts to a first mover advantage, especially in the mornings. Having a little fun with Tim, I told him that answers to questions eventually trickle down to interested investors like Tim, who later use the published transcripts as a research tool.

Tim joked that he and Maj might agree to disagree on this aspect of conference call research, citing that he favors reading the transcript as opposed to being there live for the mere fact that there tends to be a lot of superfluous jargon and lawyer-influenced language to quell disclosures that might induce investors to act.

Of course, I do not dismiss the reading of transcripts and very much endorse it. As a matter of fact, this is conveyed ad nauseam in GeoInvesting’s literature on how to most completely use conference calls to your advantage, be it in a live OR post-call way. We suggest you read the section labeled ‘The Research Cycle’ in GeoWire Issue #82 that covers the basics of initial stock idea generation, where conference calls are and why they are at times essential to attend.

“At times, conference calls can address an entirely omitted subject matter that doesn’t appear anywhere else on the web. So, while the press release is one outlet that can serve as an initial purpose to garner my interest, it’s the rabbit hole where things get exciting and valuable information is discovered.”

Expounding on his own rebuttal to my preferred way of interacting with management via live calls, Tim brings up 2 very salient perspectives. First, it is inarguable that you can waste a lot of time sitting through calls that might not have much to offer, nor would you have time to listen to as many calls as you’d want to on the company’s in which you are interested. It’s an inefficiency that persists, especially when time is of the essence.

Secondly, Tim makes a very solid argument for transcript research when trying to gauge an entire industry as a whole, picking apart, highlighting, and documenting multiple companies in areas such as restaurants, casinos, hotels and retailers. A wholesale overview of scores of transcripts can start to paint a larger picture of the concepts he focuses on the most during earnings season.

In the end, as gathered from the second clip below, we both agree that conference call narratives are crafted in varying ways, both on the company front, and on the Q&A roster front. 

On the company front, we talked about how we can’t stand it when certain companies that always underperform will use the “challenging economy card” in good and bad economic conditions! 

Reflecting on this now, you have to carefully listen to and season yourself to know how to separate sincere management teams from those always looking for a scapegoat.

On the Q&A roster front, Tim expresses his disappointment on how the same analysts attending the calls ask the recurring questions, presumably so they can just build their de facto models. They tend to go only skin deep instead of really delving into the meat of what the future looks like. Irrelevant, repetitive questions pervade the calls, as if scripted. Tim finally makes a round trip to my original point of being able to grab information arbitrage from a call when the right questions are asked by attendees who are not on the regular, “predetermined” roster.

In the following clip, we talked about the utilization of investment models in Tim’s valuation analyses, using industrial stock Paul Mueller co (OOTC:MUEL) as a specific example to drive home specific ways models can be used..

We evaluate predictions based on factors like revenue growth and earnings, highlighting the challenges of predicting peak earnings and the potential impact of changing leadership.

The conversation also delves into the nuances of analyzing backlogs, considering factors such as unit growth vs.price increases, and the influence of activism on stock behavior.

Additionally, we emphasize understanding why it’s important to make informed predictions beyond the model’s output.

As a reminder, Tim was also a guest of GeoInvesting in August of 2023, when we had our original discussion on investment strategies.

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