Stuff Managements Have Told Me - ConvergEx

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Stuff Managements Have Told Me

Summary: Meetings between public company managements and investors are the bedrock of the fundamental investment process. The reason for that, however, is

often lost in translation. rter or new

products. Seriously the reason that management meetings are useful is because, over time, managements let down their guards and act like regular

people. And in those moments, truth about character, about wisdom, about judgment comes rolling out. Today we offer up a personal highlight reel of examples

from +20 years of management meetings.

Management meetings are the coin of the realm on Wall Street. Most surveys of institutional investors put about 60% of the commission spend on the Street

soundly in a bucket dedicated for brokers which pair up clients (investors) with the C-level executives of public companies. At first blush, this might look like the old-

boys-and-girls network at play big money cracking open a bottle of the good stuff to get tips from chief executives. In reality, regulations regarding what management

can say are stiff ind

So why bother with the meetings at all? Some investors think they are better than most at reading body language or tone of voice in response to a tough question.

financial results or some questionable sushi at lunchtime. Yes, there is a bit of self-perpetuation in the management meeting process these days. If I saw 130 company

ssure to see more and more companies.

. I have been an analyst for coming up on 25 years now, and I shudder to think

of the number of times I have broken stale bread and rubber chicken with a Chief Executive Officer or other corporate operating head. But the lesson behind all those

March 14th, 2013

This presentation is not intended for retail customers.

Stocks erased earlier losses Wednesday to edge higher in choppy trading, with the Dow logging another

record high as well as its first 9-day win streak since 1996 and the S&P 500 zeroing in on its all-time closing high (S&P 500 +0.13%, Dow +0.04%, Nasdaq +0.09%). On the economic front, retail sales jumped 1.1% in February, following a revised 0.2% gain the prior month and topping expectations for a

gain of 0.5%. Meanwhile, import prices rose 1.1% last month, versus estimates for +0.5%, thanks to a higher-than-expected increase in gasoline prices. Business inventories climbed 1.0% in January for the biggest gain in 18 months and well ahead of projections for +0.4%. And lastly, mortgage applications

declined 4.7% last week as interest rates spiked 11 bps.

©2011 ConvergEx Execution Solutions LLC. May not be redistributed without express permission. All rights reserved.

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meetings is pretty straightforward: the more times you meet someone, the more you learn about them as people. Are the honest with themselves? With others? Do

they encourage information flow, both good and bad? Those are questions that matter intensely to the investment process.

To highlight why I think this is the fulcrum point of the analytical process, I spent a few minutes over the weekend jotting down the tag lines of some of the

more memorable things that managements have told me over the years. Those stories follow here.

#1 - You may not know the name Romano Artioli, but at one point in the 1990s he owned personally two of the most stories

brands in automotive history: Bugatti, which he resurrected, and Lotus, which he purchased. I visited him at his new headquarters outside Milan in early 1995 as he

considered an IPO for his company. The building, which doubled as the assembly plant for the EB 110 supercar, was brand new and beautiful. The entire office staff

male and female

He asked me if I knew the secret to what men want. I r

hat men may want those things, but suppliers

oes allow you to stay in business.

#2 - General Motors has, in my opinion, had only one good Chief Financial Officer in the decades I have known the company. He sits in that

spot right now. The prior ones spent more time doing financial engineering than the actual company engineers spent designing

At a dinner with one of these bean counters in the 1990s, I tried to push the topic of why the industry could never seem to e arn its cost of capital in anything it

touched. Not in selling cars, not in financing cars, not anything. He got short tempered at about the 7th

But then I got realized this must be how he treats his own staff. And I quickly came to the conclusion that no one, ever, was going to bring this guy bad news. I

#3 The first dot com bubb

of companies, from Oracle to the ill-fated Commerce One, tried to sign up General Motors as an anchor tenant in their online marketplaces. At the time, GM spent over

$100 billion annually on purchases of everything from steel for its cars to pharmaceuticals for its retirees. Getting them on an e-

aspiring B2B company in the book.

At one corporate event in Detroit I saw loudly and fairly publicly at Ray Lane, the then-president of Oracle. For those of you

person Oracle founder Larry Ellison would

-commerce business, there he was just taking

it. I was dumbfounded.

After the argument blew over, I approached the GM purchasing guy and asked what all the fuss was about.

They had value, just like all these crazy Valley startups and entrenched tech billionaires. In the end, of course, they were

trees.


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#4 - - Lest you think every management team in the auto industry had their heads in the clouds or submerged underground let

me finish with a story about Jerry York, the former CFO of Chrysler. Back in 1991, the company was teetering on the brink of bankruptcy as the first Gulf War led to

helping to sell an equity offering to fund the

final tooling of the first Grand Cherokee. No equity raise, no stamping dies. No dies, no cars. No cars, no Chrysler.

When Jerry finally walked in an hour late to brief us, he shoved the door open, glared at us, and said loudly - We stared

ry before, but my impression was of

someone who just wanted to get on with whatever job was at hand. Yes, his company was in trouble, but he knew he needed to level with the capital markets and with

us if he wanted a chance at survival.

The bottom line is that meeting managements is a critical part of the due diligence process for any fundamental investor. Between the

earnings forecast and the actual results sit only two things: time and management. Time is uniform; management quality is not.


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U.S. EQUITIES

Important Conferences/Corporate Meetings Today:

Barclays Healthcare Conference Chicago, IL

Citi Latin America Conference New York, NY

UBS Global Consumer Conference Boston, MA

Important Earnings Today

Source: Thomson Reuters

Three Day (High 1551.50; Low 1540.50):

Source: Thomson Financial

Three Day (High – 872.50; Low – 832.75):

75):

al

Prior Day SPX (High 1556.39; Low 1548.25; Close 1554.51):

S&P Futures One Day (High 1551.00; Low 1542.25):

):

ARO: $0.22 BKE: $1.25 NTI: $1.44 ULTA: $0.98 Source: Bloomberg

In company news, Netflix surged to lead the S&P 500 gainers after the company unveiled a new feature that allows users to connect their accounts to Facebook,

al media advertisements. Apple faltered after the release of a report showing shipments of tablets running

nd raised its price target to $48 from $41.

And among earnings, Express tumbled after delivering a full-year outlook that widely missed Wall Street forecasts.


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FIXED INCOME

Source: Bloomberg

Treasuries erased losses as 10-year note yields near 11-month highs boosted demand at the government -year note auction. The notes drew a yield of

2.029%, compared with a forecast of 2.057%, while the bid-to-cover came in at 3.19, versus an average of 2.92 at the past 10 offerings. Benchmark yields were little

changed Wednesday afternoon at 2.02% after earlier increasing to 2.05%. The yield reached an 11-month high of 2.08% in March 8.

Jobless Claims (8:30am EST): 350,000

Producer Price Index (8:30am ES)T: 0.6%

o Less food & energy: 0.2%

Current Account (8:30am EST): $-111.9 B

Bloomberg Consumer Comfort Index (9:45am EST) EIA Natural Gas Report (10:0am EST)


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Name Ticker Category Prior Day Return Sector Ticker 1-Day Perf YTD Perf Sector Ticker 1-Day Perf YTD Perf

SPDRs SPY Large Blend -0.22% Energy XLE 0.11% 10.78% Telecomm IYZ 0.45% 0.37%

SPDR Gold Shares GLD N/A 0.78% Health XLV 0.45% 12.76% Technology XLK -0.36% 4.85%

iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts -1.14% Industrials XLI -0.57% 10.08% Consumer Discretionary XLY -0.28% 10.88%

iShares MSCI EAFE Index EFA Foreign Large Blend -0.50% Utilities XLU -0.26% 8.71% Financials XLF -0.54% 11.53%

iShares S&P 500 Index IVV Large Blend -0.24% Consumer Staples XLP -0.10% 10.66% Materials XLB 0.08% 6.13%

Emerging Markets VWO Emerging Markets -0.57%

PowerShares QQQ QQQ Large Growth -0.10%

Barclays TIPS Bond Fund TIP Fixed Income -0.01% Currency Ticker 1-Day Perf YTD Perf Currency Ticker 1-Day Perf YTD Perf

Total Stock Market ETF VTI Large Blend -0.14% Australian Dollar FXA 0.51% -0.83% Mexican Peso FXM 0.00% 0.00%

iBoxx Investment Grade Corporate Bond Fund LQD Fixed Income 0.09% British Pound Sterling FXB -0.10% -8.34% Swedish Krona FXS 0.57% 2.23%

Canadian Dollar FXC 0.03% -3.23% Swiss Franc FXF 0.09% -3.44%

Euro FXE -0.03% -1.31% USD Index Bearish UDN 0.08% -3.60%

Name Ticker Category Shares Traded Japanese Yen FXY 0.30% -9.66% USD Index Bullish UUP -0.04% 3.16%

SPDR S&P 500 SPY Large Blend 91,754,391

iPath S&P 500 VIX ST Futures ETN VXX Volatility 56,643,406

iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts 48,448,337

PowerShares QQQ A0MN1YLarge Growth 26,904,574 Name Ticker 1-Day Perf YTD Perf Bonds Ticker 1-Day Perf YTD Perf

iShares FTSE China 25 Index Fund FXI China Region 21,949,330 iPath S&P 500 VIX VXX 1.54% -33.83% Aggregate AGG 0.18% -0.90%

VelocityShares Daily Inverse VIX ST ETN XIV Volatility 21,038,636 Short-Term Futures ETN Investment Grade LQD 0.20% -1.56%

iShares Russell 2000 Index IWM Small Blend 19,078,162 High Yield HYG -0.04% 0.71%

Market Vectors Gold Miners ETF GDX Equity Precious Metals 18,755,588 iPath S&P 500 VIX VXZ 0.37% -23.01% 1-3 Year Treasuries SHY 0.02% 0.01%

Vanguard FTSE Emerging Markets ETF VWO Diversified Emerging Mkts 13,347,543 Mid-Term Futures ETN 7-10 Year Treasuries IEF 0.27% -1.40%

VelocityShares Daily 2x VIX ST ETN TVIX Volatility 11,185,853 20+ Year Treasuries TLT 0.72% -4.53%

Name Ticker Category Shares Traded

iPath Global Carbon ETN GRN Commodities Miscellaneous 8.54% ETF Ticker 1-Day Perf YTD Perf ETF Ticker 1-Day Perf YTD Perf

Direxion Daily Gold Miners Bull 3X Shrs NUGT Trading-Leveraged Equity 7.59% Gold GLD 0.78% -4.83% Crude Oil USO 0.67% -0.33%

ELEMENTS CS Global Warming ETN GWO Miscellaneous Sector 5.50% Silver SLV 0.64% -3.98% EAFE Index EFA -0.50% 4.22%

Direxion Daily China Bear 3X Shares YANG Trading-Inverse Equity 4.97% Natural Gas UNG -0.25% 5.77% Emerging Markets EEM -1.14% -2.16%

WisdomTree Global Real Return RRF World Bond 4.66% SPDRs SPY -0.22% 9.32%

Global X Gold Explorers ETF GLDX Equity Precious Metals 3.89%

Market Vectors Junior Gold Miners ETF GDXJ Equity Precious Metals 3.62%

FactorShares 2X: Oil Bull/S&P500 Bear FOL Trading-Miscellaneous 3.62%

ProShares UltraShort FTSE China 25 FXP Trading-Inverse Equity 3.57%

C-Tracks Citi Volatility Index TR ETN CVOL Volatility 3.48%

Additional ETFs

Prior Day Peformance of Largest ETFs by Assets

Prior Day Top Volume ETFs

Prior Day Top Performers

S&P 500 Sector ETFs

VIX ETNs Fixed Income ETFs

Major Index Changes:

None

ETF Desk 212.468.8405 | [email protected] Affiliate, ConvergEx Execution Solutions LLC. Member FINRA/SIPC.

Exchange-Traded Funds/Indexes

ETFs in the News: Leveraged ETFs: An Endangered Species? - http://www.fool.com/investing/etf/2013/03/13/leveraged-etfs-an-endangered-species.aspx


http://www.fool.com/investing/etf/2013/03/13/leveraged-etfs-an-endangered-species.aspx

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International Market Summary

Asian Markets Asian stocks ended lower for a second day on Wednesday as investors continued to

book profits on concerns that the recent rally is headed for a swift correction (Nikkei -

0.61%, Hang Seng -1.46%, ASX -0.50%).

Mainland Chinese shares lost -0.99% as poor corporate earnings dampened investor sentiment, pushing Hong Kong shares down as well.

The Nikkei dropped for a second day as a pause in the yen s downward trend

weighed on the index, and exporters sold off. Losses were limited, however, by

expectations of aggressive monetary easing when a new BOJ governor takes over next

month.

KOSPI rose +0.32% as the won gained back some ground against the

yen, though gains were limited as investors await an interest rate decision due out

Thursday.

Australian shares finished lower as financials faltered for a second day, after both

UBS and Deutsche Bank stated that the sector was overpriced. The index is still up

22% since last year.

dropped -1.03%.

European Markets European shares closed slightly lower but off their lows for the day as US data helped

recoup losses, after retail sales data pointed to continuing recovery across the Atlantic (FTSE -0.45%, DAX +0.06%, CAC -0.1%). However, Italy closed down -1.7%

following weak demand at its bond auction, the first since Fitch s sovereign debt

downgrade. Economic data in the EU, however, was generally worse than forecast, with

French non-farm payrolls falling -0.3% over last quarter, and CPI rising 0.3%. Industrial

production for the region as a whole dropped -0.4%, well below estimates of a -0.1% fall.

Spain Retail Sales (4:00am EST): -11.2% y/y Netherlands Retail Sales (4:30am EST) Trade Balance (4:30am EST) Ireland CPI (7:00am EST) Eurozone ECB Monthly Report (5:00am EST) Employment Change (6:00am EST): -0.1% q/q

Important Economic Indicators/Events (with Consensus estimates): Important Economic Indicators/Events (with Consensus estimates): Japan Industrial Production (12:30am EST): 1.0% India WPI (2:30am EST): 6.59% Singapore Unemployment Rate (10:00pm EST): 1.8%


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ZeroHedge

Guess Which Country The IMF Forecasts Will Grow The Most In 2016 - http://www.zerohedge.com/news/2013-03-13/guess-which-country-imf-forecasts-will-grow-

most-2016

Guest Post: Net Worth Vs. Net Value - http://www.zerohedge.com/news/2013-03-13/guest-post-net-worth-vs-net-value

Guest Post: NFIB: "No Sign Of A Surge In Confidence" - http://www.zerohedge.com/news/2013-03-13/guest-post-nfib-no-sign-surge-confidence

If History Is Any Lesson - Naaah! - http://www.zerohedge.com/news/2013-03-13/if-history-any-lesson-naaah

Guest P - http://www.zerohedge.com/news/2013-03-12/guest-post-china%E2%80%99s-military-

development-beyond-numbers

Bitcoin 'Glitch' Sparks 23% Flash Crash - http://www.zerohedge.com/news/2013-03-12/bitcoin-glitch-sparks-23-flash-crash

The Big Picture

Is Insider Selling A Concern? (No) - http://www.ritholtz.com/blog/2013/03/is-insider-selling-a-concern-no/

The Truth About Market Timing - http://www.ritholtz.com/blog/2013/03/the-truth-about-market-timing/

Discuss: Is Anything Cheap? - http://www.ritholtz.com/blog/2013/03/discuss-is-anything-cheap/

Bespoke Investment Group

Dow and S&P 500 Correlation - http://www.bespokeinvest.com/thinkbig/2013/3/13/dow-and-sp-500-correlation.html

Calculated Risk

FHFA: Over 1 Million HARP Refinances in 2012 - http://www.calculatedriskblog.com/2013/03/fhfa-over-1-million-harp-refinances-in.html

Zillow forecasts Case-Shiller House Price index to increase 8.0% Year-over-year for January - http://www.calculatedriskblog.com/2013/03/zillow-forecasts-case-

shiller-house.html

The Conscience of a Liberal

Night of the Living Alesina - http://krugman.blogs.nytimes.com/2013/03/13/night-of-the-living-alesina/

The Eurobeatings Will Continue - http://krugman.blogs.nytimes.com/2013/03/12/the-eurobeatings-will-continue/

Economist s View

'When Will It Be 'Crunch Time' for U.S. Debt Accumulation?' - http://economistsview.typepad.com/economistsview/2013/03/when-will-it-be-crunch-time-for-us-

debt-accumulation.html

Huge Flight of Rich after French Tax Hikes? Nope. - http://economistsview.typepad.com/economistsview/2013/03/-huge-flight-of-rich-after-french-tax-hikes-

nope.html

Additional Reading (Online Blog and News Stories)


http://www.zerohedge.com/news/2013-03-13/guess-which-country-imf-forecasts-will-grow-most-2016

http://www.zerohedge.com/news/2013-03-13/guess-which-country-imf-forecasts-will-grow-most-2016

http://www.zerohedge.com/news/2013-03-13/guest-post-net-worth-vs-net-value

http://www.zerohedge.com/news/2013-03-13/guest-post-nfib-no-sign-surge-confidence

http://www.zerohedge.com/news/2013-03-13/if-history-any-lesson-naaah

http://www.zerohedge.com/news/2013-03-12/guest-post-china%E2%80%99s-military-development-beyond-numbers

http://www.zerohedge.com/news/2013-03-12/guest-post-china%E2%80%99s-military-development-beyond-numbers

http://www.zerohedge.com/news/2013-03-12/bitcoin-glitch-sparks-23-flash-crash

http://www.ritholtz.com/blog/2013/03/is-insider-selling-a-concern-no/

http://www.ritholtz.com/blog/2013/03/the-truth-about-market-timing/

http://www.ritholtz.com/blog/2013/03/discuss-is-anything-cheap/

http://www.bespokeinvest.com/thinkbig/2013/3/13/dow-and-sp-500-correlation.html

http://www.calculatedriskblog.com/2013/03/fhfa-over-1-million-harp-refinances-in.html

http://www.calculatedriskblog.com/2013/03/zillow-forecasts-case-shiller-house.html

http://www.calculatedriskblog.com/2013/03/zillow-forecasts-case-shiller-house.html

http://krugman.blogs.nytimes.com/2013/03/13/night-of-the-living-alesina/

http://krugman.blogs.nytimes.com/2013/03/12/the-eurobeatings-will-continue/

http://economistsview.typepad.com/economistsview/2013/03/when-will-it-be-crunch-time-for-us-debt-accumulation.html

http://economistsview.typepad.com/economistsview/2013/03/when-will-it-be-crunch-time-for-us-debt-accumulation.html

http://economistsview.typepad.com/economistsview/2013/03/-huge-flight-of-rich-after-french-tax-hikes-nope.html

http://economistsview.typepad.com/economistsview/2013/03/-huge-flight-of-rich-after-french-tax-hikes-nope.html

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This presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It is provided for general

informational purposes only and should not be relied on for any other purpose. It is not, and is not intended to be, research, a recommendation or investment advice,

as it does not constitute substantive research or analysis, nor an offer to sell or the solicitation of offers to buy any

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The opinions and information herein are current only as of the date appearing on the cover. ConvergEx has no obligation to provide any updates or changes to such

opinions or information. The economic and market assumptions and forecasts are subject to high levels of uncertainty that may affect actual performance. Such

assumptions and forecasts may prove untrue or inaccurate and should be viewed as merely representative of a broad range of possibilities. They are subject to

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The opinions expressed in this presentation are those of various authors, and do not necessarily represent the opinions of ConvergEx or its affiliates. This material has

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Stuff Managements Have Told Me - ConvergEx

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