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NIRI 2013 Social Media Workshop Case Study: How one buy-side analyst uses social media

By   9 July 2013 One Comment

buy-sideAt this year’s annual NIRI conference there were three sessions/workshops dedicated to social media. This wasn’t really surprising considering in early April the SEC finally broke their silence regarding social media use by public companies.  I had the pleasure of partaking in a workshop on the last day regarding social media entitled: ‘Take the Wheel and Drive Your Company’s Social Media Strategy’.

As a follow up, I did a two-part series of posts that summarized key takeaways and the ensuing question and answer session workshop. The first post focused on a legal perspective supplied by Broc Romanek, Editor, TheCorporateCounsel.net and Chris Demuth, a buy-side analyst (and partner) at Rangeley Capital. The second post gathered insights from two IROs (David Urban, Director or IR, Johnson Controls) and RJ Jones, IRO, Zillow, Inc. about how social media helps them control how their company is viewed in the social sphere.

The workshop lasted two hours and after some comments provided by each panelist, we broke out into discussion groups.  There was a mix of IROs and those who provide services to them – which provided the right audience to exchange thoughts on social media use for IR.  Two hours didn’t seem long enough…so I decided to do follow up interviews with each speaker to get an even deeper understanding of their thoughts and opinions of social media for IR.

We begin with Chris Demuth, Partner, Rangeley Capital.

1.    Tell us a little bit about yourself.

I am a lifelong value investor and am a partner at Rangeley Capital, an event driven investment partnership located in New Canaan, Connecticut.

2.    How long have you been using social media and why did you decide to use it at Rangeley?

I started using social media last year (here is where one can find articles and blog posts: http://seekingalpha.com/author/chris-demuth-jr).  I decided to use it at Rangeley because it can be a powerful tool for assessing market-implied probabilities of corporate events.  We follow and aggregate information from a large number of fellow writers.  I write when I think that there is an interesting investment case to be made for an investment in our portfolio.

3.    What social channels do you use the most? Why?

Seeking Alpha.  It has the best search engine optimization and I like their website and their editors.

4.     Is Seeking Alpha the only channel you use?

Yes. It is where I host my blog, write articles, and coordinate with other investors.

5.    How does a company get on your radar?

A company gets on my radar when it is substantially mispriced by the capital markets.  If the price is off by 25% or more, I become very interested.

6.    Do you always rely on the information you find about a company on social media? That is, do you ever contact the company or visit their website to double check facts?

Of course not – we never rely on secondary sources for anything.  Like good journalists, we double or triple source everything, independently corroborating all aspects of our investment thesis with primary sources.

7.     Who is the first point of contact at the company? The IRO? CEO? CFO? Do you ever get asked to provide any articles you are going to publish on Seeking Alpha beforehand? How do you handle these requests?

It varies.  With smaller companies, it goes back and forth between the CEO and CFO; I prefer to discuss financial reporting issues with the CFO, strategic issues with the CEO, and anything to do with corporate transactions with the Chairman.  With larger companies, I tend to first coordinate with IR.  I generally show articles to IR or to the CFO and ask for corrections.  I have never changed the substance of my thesis, but have made sure that there are no factual errors.

8.    Do you have any best and worst case scenarios for dealing with IR?

The worst cases are when companies are unresponsive.  There is always a sense of urgency when dealing with markets and if we are at all interested in investing in a company; it will be a research-intensive process.  Bad communication is often the start of relationships that can end in adversarial relationships, sometimes in court.  Good communication can lead to situations where we can be helpful and relevant to management teams that are trying to maximize value for the company’s owners.

9.    Any advice to IROs about how to deal with an activist shareholder?

The key is to treat owners like owners.  They/we want to maximize value and will tend to be sympathetic towards plans that involve a return of capital to owners whenever there is not a highly compelling business reason to retain it.

The next post will feature a follow-up interview with Broc Romanek, who gives his thoughts on the importance of listening to online conversations, having a social media policy for your company and the implications of the SEC’s release.