PART II
THE PERFECT PITCH
As we discuss in the book’s introduction, if you don’t have a great investment idea, there is nothing to pitch. Part I of the book explained how to:
- Calculate the range of intrinsic values for a stock.
- Articulate why the stock is mispriced.
- Determine whether you have a variant perspective and an advantage over other investors.
- Assess the investment’s level of risk.
You now have all the tools you need to vet the perfect investment. However, if you have a great idea but cannot communicate it, your pitch will fall on deaf ears.
A pitch is comprised of three main sections: the security you select, the content of your message, and the delivery of that message. To select the proper security, the analyst must know the portfolio manager’s selection criteria, which we discuss in Chapter 10. We show that the manager will not even listen to an investment pitch unless it satisfies his investment criteria. We then show in Chapter 11 how to organize the content to maximize the impact of the pitch. Finally, we discuss in Chapter 12 the different elements necessary to ensure effective delivery of the message.
The person making the buy or sell decision is the person to whom you are pitching. That person is most often a portfolio manager whose goal is to beat the market, which means he needs to earn an investment return above the market return after fees and adjusting for risk. As a consequence, the portfolio manager’s most important concern is performance. To generate good performance, the manager needs to find ideas to put into his portfolio that will beat the market. If a portfolio manager hears a compelling pitch and believes that the idea will outperform the market, he will begin salivating like one of Pavlov’s dogs.
The ideal outcome of a stock pitch is that your idea is so captivating in both its content and delivery that the portfolio manager feels compelled to immediately “clear his desk” and begin working on the idea for fear of missing an opportunity to outperform.
How do you know what kind of idea will get him to clear his desk?