Having digital access would be a convenient way to engage with more investors  
Thursday 19 Jul 2018 Author: Daniel Coatsworth

It would be nice to see more companies and funds broadcast their shareholder meetings via the internet so that more investors have a chance to watch what directors and fund managers have to say about current events. Annual general meetings (AGMs) can also be valuable sources of investing information, as I explain later in this article.

Companies and funds often go to a lot of trouble producing annual reports, yet they are missing a trick by not embracing digital channels to publish their AGM meetings. It is very easy to film someone talking and upload it to a platform like Youtube.

Some make it hard for investors to attend AGMs as they hold the meetings early in the morning in inconvenient locations. Having a digital broadcast would solve this problem, although we wouldn’t want AGMs going online-only as that would deny investors the chance of asking difficult questions face-to-face and could see the company or fund have too much control over the questions they are willing to answer.

There should still be an option to attend the meeting in person to give shareholders a chance to meet the board of directors and interact with other investors.

VALUABLE INFORMATION

It is fair to say that a lot of investors are quick to dismiss AGMs, saying they are a waste of time. If you share that view, I urge you to watch Fundsmith Emerging Equities Trust’s (FEET) recent AGM which is an excellent example of the effectiveness of online AGM broadcasts, plus how you can learn an awful lot in an hour.

The presentation by fund manager Terry Smith contained valuable lessons on investing in general, blended with information about his investment trust. One of the points that really caught my attention was his explanation of how returns are derived from equities. Smith shot down the widely-held view that most returns come from reinvesting dividends. He said that was wrong.

The fund manager said returns were driven by a company reinvesting profits back into the business and achieving a greater return than the cost of investment. ‘High return on operating capital employed in cash is the single most important measure of whether a company is creating value for you,’ he said.

The fund manager argued that if you reinvest the dividend, you may pay tax on the dividend and you can use that cash buy more shares at the current market price. If it is a good company, the market price will be a multiple of the book value. He argued that reinvesting dividends were nowhere near as efficient as the company retaining the money to reinvest in its business.

‘Equities are the only asset class where a portion of the return you are being given by the company is automatically retained – around half of cash flow and profit on average – and reinvested in the business. That reinvestment, if done well, generates the compounding that equities produce better than any other asset class.’

I highly recommend you watch the Fundsmith video for education purposes. As for AGMs in general, I urge you to contact your investee companies and funds to see their thoughts on filming shareholder meetings and putting them online for your convenience. Some may not have given it prior consideration, so you could be the catalyst for change. (DC)

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