I delivered a presentation at lunchtime today at a meeting of fellow fund managers in Frankfurt. This is a private monthly meeting of about 30 somewhat smaller fund managers, plus selected guests, who take turns to present and to subsequently field a few questions about his or her presentation, as well as about important actual finance industry related matters (e.g. trade wars today).
My presentation was called “long-term strategy - short-term pressure” which focussed primarily on the short term obsession by investors on quarterly earnings. Although quarterly earnings are very important, they often do not take into account each individual company’s product and business, their markets and their overall evolutionary cycle. Although my EDE shareholding forms only a small part of my fund, the EdenCrete situation is a classic example of this major problem.
Although I did not mention EDE, TAS or EdenCrete by name, I did use EDE and specifically EdenCrete as an example of a serious start-up, possibly on the verge of substantial success, going through all the difficult stages that every start-up has to go through, with regard to the inner conflicts of a long-term strategy versus short-term pressure.
Here is a slightly amended form of my short presentation:
From the EDE perspective, it would be a severe distraction to worry about the stock price or quarterly earnings in the short term. The mindset is that if EDE consistently build EdenCrete the company, and continue to do the right things, the stock price will take care of itself.
At all evolutionary stages, it is all about taking care of customers, employees and communities as well as building long term shareholder value. It is important to remember that in just about all cases, shareholders are workers who are saving for a home, putting their kids through school or saving for retirement, or indeed already in retirement and seeking an annuity. It goes without saying that both the EDE BOD and the EdenCrete management team are well aware of the enormous responsibility they have to perform for these shareholders, as well as for the EdenCrete employees.
Organic growth is all about hiring personnel, training, improving or innovating new products and building new technology. It is hard work. It is difficult to justify additional expenses to shareholders even if they are good for the business. The same goes for growing the sales force, and it is also hard work to properly recruit and train salespeople.
EdenCrete is an entirely new product and also in conflict with existing products. Thus, all of EdenCrete’s efforts require huge team coordination. I believe that the BOD at EDE is intent on building the right culture, where the EdenCrete management team is aware of these difficulties, as well as being critical of EdenCrete's strengths and weaknesses as a product. Through this analysis, the management team will create great clarity about where the largest opportunities exist for EdenCrete, which will lead to long term and successful organic growth. It takes strong leaders who have the discipline and fortitude to develop and execute a forward-looking growth plan.
When it comes to EdenCrete, one thing that every EDE shareholder should do is not confuse success with profits in a quarter, or even in a year. All businesses have a different customer, roll-out and investment life cycle, which can be anywhere from one year to 5 years and beyond. Everything EdenCrete does to grow the business will cost money in the short term, whether it is conducting research and development (R&D), launching products etc. However, this does not mean that it is not the right financial decision.
Generally speaking, companies are either losing money and on their way to bankruptcy, or on their way to significant success. Good BOD’s and management teams understand the difference between the two scenarios and invest in a way that will make the company financially successful over time. You need to invest continually for better products and services so you can serve your customers in the future.
EDE and EdenCrete cannot simply abandon their long-term sales, product and investment strategies, just because of quarterly or annual earnings pressures and/or a depressed share price. It simply does not work when a long term strategy is changed due to short-term pressures.
EdenCrete is at the stage of having a great product, overcoming industry resistance and learning how to understand the needs of their future customers, all the time whilst explaining to shareholders why certain decisions were appropriate at that time.
Earnings results for the next few years will fundamentally be the result of decisions that were made many years earlier.
Thank you for your attention.
Please note that the above presentation is business reality and not an up-ramp. Nor am I here to win a prize. It is all about sharing and discussing information, which by the way functions in an excellent manner, on the first Thursday of every month here in Frankfurt.
Whether EDE and EdenCrete are successful, and whether shareholders get an above average return is up to the EDE BOD, the EdenCrete management team and all its employees and most importantly, EdenCrete the product. Having said all this, each shareholder should also be very aware of their individual situation and the need to do their homework and make their own individual and very sound investment decisions.
Please feel free to accuse me of all manner of atrocities, personally criticise me, and generally tear the above post to shreds in your customary manner. Anything less would come to me as a major surprise.
MB
Please Note. Readers must do their own research before making any investment decisions. All posts from me are my own personal opinion und are not intended as a recommendation to buy, sell or hold.
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