Why face-to-face beats AI: the value of leaving the desk
High-turnover, high-volume strategies might rely on algorithms and AI for their trading ideas. But at FSSA Investment Managers, we believe the key to building conviction in our investment ideas is having face-to-face conversations with the people and companies we invest in.
AI and machine learning are revolutionising the way investment professionals analyse data and execute trades. But while technology may be able to improve productivity and efficiency, it is no substitute for human interaction and insight.
At FSSA, we believe that identifying the most promising companies – at the right prices – requires looking beyond the headline numbers and annual reports.
That’s why, since our team was established more than 30 years ago, we have stood firm in our belief that any reliable assessment of a company’s long-term growth potential requires face-to-face interaction.
How to find the best leadership teams
We believe that management quality is one of the most important factors that contributes to a company’s success (click to read Management Quality: How We Identify Teams Built to Last). And perhaps the only way to assess this properly is by meeting leadership teams in person.
Once we’ve examined a firm’s financial fundamentals and business model, we begin the process of engaging with senior management. This helps to build our conviction in the investment case.
Meeting with management teams onsite helps us better understand the culture of the business. We see just how the company operates behind the scenes: for example, executive-only elevators or management-only dining rooms might imply a sense of grandeur or a strict, unquestioning hierarchy.
History as a guide
We believe that past behaviour can give a strong indication of a company’s future decisions. When assessing a firm’s quality, we’ll look just as closely at a company’s history as their future financial projections.
We want to know how the business was founded, how it made its first million, and how management behaved during times of stress – whether that be the 1998 Asian financial crisis, the global financial crisis or the more recent global pandemic.
Face-to-face meetings with management reveal what they’re happy to discuss – and what they may be reluctant to share. Both can be equally illuminating.
We arrive at those initial meetings having done our due diligence on the firm. If senior executives are evasive about the company’s past or deliberately omit important details, we’ll know.
And if they’re open and willing to speak candidly about challenging periods in the firm’s history, we’ll also recognise that potential basis for a trusting partnership.
Building relationships beyond the screen
Financial information and company analyses are widely available, even in emerging markets.
But we take this one step further. In-person discussions provide enhanced insights into everything from competitive dynamics in an industry to the potential impact of succession plans.
Once we have invested, we also use these meetings to engage on material issues and share best practice. We start our conversations with firms as potential long-term partners, rather than short-term renters of their shares.
Our investee companies appreciate our long-term approach and often instigate positive changes following our engagement.
Our process may require hours of conversation on top of computer-based research, but we feel it’s essential to go beyond the screen. And our record of unearthing exceptional emerging-markets businesses proves it’s worth the effort.
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