The vast majority of the Cove Street investment team’s day is spent reading, creating and perusing models, and finding and talking to relevant third party sources of background information. The purpose of these activities is to build a more holistic picture or “mosaic” of a prospective investment. Every piece of pertinent information provides a small clue that helps us understand the intrinsic value of a company’s business model that can potentially provide solid returns with a significant margin of safety. Attending conferences is one small, but important way that we identify interesting people to talk with and better evaluate trends in an industry.

Conferences fall into two buckets: investment banking and trade show or industry conferences. We prefer the latter for reasons we will articulate later. In an investment banking conference, an investment bank invites a large number of firms to present their companies and to hold meetings with prospective investors in one on one or group formats. The companies benefit from reaching a large number of investors in a short period and investors benefit from meeting management teams they otherwise might not meet. Furthermore, these conferences provide a forum for exploring companies that might not quantitatively screen well, but which have a qualitative story that is interesting. It is also to see where people aren’t. If there are 4 ongoing break-out sessions and 3 of them have 30 people in them and the last has 4 people – that can be a nose in the right direction.

But generally the conferences are awful, and as the senior kibitzer at Cove Street says, “they are full of young dumbasses.” Moving on…. investors are given 30 minutes with management teams, which can therefore restrict one’s ability to go into detail on important questions. In group meetings other investors can attempt to monopolize meeting time or persist in asking nonsensical questions to everyone’s detriment. Management team presentations like all sales presentations tend to overly focus on positive attributes of the company while giving little attention to the downsides. The questions provided by sell side analysts when interviewing firms during company presentations tend to address high level questions that are unlikely to draw the ire of the company with whom their investment banking arms are usually trying to win business.

Trade shows or industry conferences are fundamentally different from their investment banking counterparts. Walking the floor of a trade show lets you better understand how a company fits into the larger competitive ecosystem. There is also little substitute for seeing a product or service in a demonstration. One can read about a product all day or hear it described, but seeing a demonstration can be way more impactful.

Trade shows give an investor the opportunity to learn more about the reputation of the company, potential competitors that could otherwise fly under your radar, and new innovations that could hurt or help the target company or industry. Unlike investment banking conferences, where the CEO, CFO, or often the investor relations are present, trade shows are usually populated by lower level employees, customers, competitors, and suppliers. These groups tend to provide a better overview of the company’s value proposition and often give less biased views of the company’s strengths and weaknesses than management teams. One also gets the chance to see the efficacy of the company’s sales efforts and gauge “the buzz” or lack thereof around a company’s latest offering.

Unlike investment banking conferences that are full of investors, it has been our experience that there are virtually no investors at most trade shows other than the mega shows like the Consumer Electronics Show (CES). The less sexy and more boring the underlying industry, in our very unscientific estimation, the smaller the investor attendance. The author in particular can attest that no one wants to see dentists more often than they already have to and therefore the population of investors at the Dental Conference of the West in his estimation was near zero. By attending a trade show, an investor therefore receives a perspective that very few other investors obtain.

If trade shows are both interesting and valuable, why you may ask, are they so sparsely attended by investors? The answer lies in human nature. We are herd like creatures. We investors like everyone else enjoy being with our peers. Investors can yack with each other at lunch or talk about their latest good idea. Furthermore, the company meetings are planned and both parties want to talk with one another (at least in theory). If a meeting goes well and results in a future investment, then both parties benefit.

Contrast this situation with a trade show. You as the investor have to walk up to and talk with complete strangers out of the blue. Worse, other than your perspective on the industry, you have very little or nothing to offer the person you are speaking with…you are not a buyer and you are taking them away from their jobs. As a result, going to trade shows takes a decent amount of courage and a willingness to put oneself out there in a way that many people in our industry are uncomfortable doing. Until artificially intelligent beings can walk the trade floor, or human nature is fundamentally altered, we at Cove are confident that we will continue to benefit from attending trade shows.

– Dean Pagonis, Analyst

Information provided on this site is for informational and/or educational purposes only and is not, in any way, to be considered investment advice nor a recommendation of any investment product. Advice may only be provided by Cove Street Capital’s (“CSC”) advisory persons after entering into an advisory agreement and provided CSC with all requested background and account information.

From time to time on our website we may offer direct access or ‘links’ to other Internet websites. These sites contain information that has been created, published, maintained or otherwise posted by institutions or organizations independent of Cove Street Capital LLC. CSC does not endorse, approve, certify or control these websites and does not assume responsibility for the accuracy, completeness or timeliness of the information located there. Visitors to these websites should not use or rely on the information contained therein until consulting with an independent finance professional. CSC does not necessarily endorse or recommend any products or services described by these websites.

Past performance is not a guarantee or indicator of future results. The opinions expressed herein are those of Cove Street Capital and are subject to change without notice. Consider the investment objectives, risks, and expenses before investing. You should not assume that any of the securities discussed, if any, are or will be profitable, or that references we make will be profitable.

CSC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. Additional information about CSC can be found in our ADV Part 2A. A copy of CSC’s current written disclosure statement discussing the Company’s business operations, services, and fees is available on our website and also upon written request.