Three Questions to Ask in an Annual General Meeting

The annual general meeting (AGM) season is coming around again. Most well known for their free food, free goodie bags or even discount vouchers, these meetings seem to be famous for all the wrong reasons.

That’s because AGMs actually serve a very important purpose – apart from their buffets and gifts – for any investor who has capital entrusted to business leaders who run publicly-listed companies. It is a time for shareholders to get up close with management to size up their personalities and capabilities; a time for shareholders to raise some questions they have after reviewing the company’s performance.

So, the next time you attend an AGM held by companies you own shares in, here are some questions to keep in mind while enjoying the food.

1. Does the company have sufficient room for growth in the next few years?

Management would generally have discussed the prospects for their companies in the near future in earnings releases. However, it might still be worth the trouble to get management teams to explain in detail how they plan to achieve that growth. Management’s answer to such questions can serve as a gauge of how candid they are toward minority shareholders such as you and me.

2. What are the challenges management is facing and how is the team addressing them?

It’s only human nature to want to focus on the positives and it is no different for a company’s CEO. Managements often enjoy discussing the achievements of their company and how they can continue growing the company as long as they are in charge. However, there might be management teams who are more reluctant to discuss problems – especially chronic problems that have persisted for years that their companies are facing.

In such cases, a gentle reminder from you as a shareholder might reveal the actions management is taking to solve the issues, or in the worst case scenario, reveal to you a team of leaders who are simply hoping for the best without any concrete plans to tackle problems.

3. Does the company require equity financing in the near future?

This is especially important as all the growth in sales, profits, and cash flow a company might enjoy would be useless to you, as an existing shareholder, if the company intends to fund its growth using equity financing (a move which holds the possibility of resulting in massive dilution of existing shareholders depending on the type of equity financing undertaken).

Real estate investment trusts (REITs) have a structural tendency to raise equity financing every now and then as they have to distribute most of their earnings, leaving little for expansion needs.

This particular question is something you’ll need to ask if you are invested in a REIT or a company that has taken on higher-than-usual leverage.

Foolish Summary

Just to be clear, while the questions above might have a hint of someone trying to aggressively challenge management’s actions, that’s certainly not the intention.

In any case, there can be situations where the cause of a disappointing investment resides in a mismatch of expectations between investors and management, rather than a poor investing decision per se. Given the opportunity in an AGM for you (as an investor) to better understand management’s expectations for their business in addition to asking the aforementioned questions, I would strongly encourage you to drop by for AGMs if you are free. If anything, the food’s really nice too.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.