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A trader makes a phone call at the stock market in Frankfurt, Germany, Thursday, Jan. 5, 2012.

Michael Probst/Michael Probst/AP

Fabrice Taylor, CFA, publishes the President's Club investment letter. His letter and The Globe and Mail have a distribution agreement. You can get a free copy here.

I used to be a decent investor. Then I earned the gold standard of credentials in the investment industry, the Chartered Financial Analyst (CFA) designation, and I became a bad investor.

It's not the fault of the CFA course, which is excellent. It's that I got complacent and overconfident afterward. Before I had three prestigious letters after my name, I read not just a company's financial reports, but everything else I could find. And I used what I learned to interview management.

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Once I earned my analytical stripes, however, I stopped phoning. I'd dig into company financial statements, build a spreadsheet and draw my conclusions. The phone became a quaint 19th-century device.

Thus began my real investing education, and it cost me dearly. Knowing about accounting, derivatives and the like is very useful, but my portfolio languished. There's no substitute for talking to people who run companies.

Of course, you have to know what questions to ask and how to interpret their responses. But once you get CEOs, CFOs or investor relations people on the phone—and top-level executives at small and mid-sized companies will often talk even to individual investors—I'll bet your returns will improve significantly.

Let me illustrate. About a year ago, I was intrigued by a packaging company. It looked like a classic broken stock on the mend—potentially rewarding but risky. Donning my CFA cap, I read financial results and analysts' reports. Then I called the CEO.

Of course, a CEO can't give individuals formal investment advice about their shares, or facts or numbers that haven't been disclosed publicly. So I asked a roundabout question: "I write a newsletter and a column for thousands of people. I don't want to have egg on my face, and neither do you. I'm happy to wait two, six or 12 months, or drop the idea. Do you think this is a good time?"

He thought about that for a while. "If you'd asked me that six months ago, I probably would have told you to wait," he said. As business deteriorated over the previous three years, he had often erred on the side of optimism when investors called, only to disappoint them. He was sick of it, so he'd stopped making predictions. He was going to wait until the odds were on his side.

"And now?" I asked. He felt the clouds might finally be parting. There was no guarantee, but given what he said, I thought the timing was good. I was right: The stock has more than tripled.

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The phone is also a valuable tool for spotting potential pitfalls. Remember Sino-Forest Corp.? Last June, a U.S. short seller issued a report that alleged that the company was a fraud. Sino-Forest's share price plunged. The company denied the charges, and some investors bought more stock.

Yet the share price continued to sink. In August, Sino-Forest released quarterly financial results, but cancelled a customary conference call for analysts and investors. CEO Allen Chan didn't return calls from reporters. The Ontario Securities Commission then halted trading in Sino-Forest shares and announced an investigation. Chan resigned. When a CEO won't talk to anyone, that tells you something.

Most executives want to tell investors about their company. So put down the calculator, pick up the phone and let them do so—or not.


GROWTH Pure Technologies Ltd. Trailing three-year growth in revenue: 94% Pipelines, water mains, sewers and "pre-stressed concrete cylinder pipe" are wonderfully handy things, until they start to crack and spew. Calgary-based Pure Technologies does inspections and makes monitoring gear that helps detect flaws early and prevent problems from escalating. Investors should carefully inspect the stock.

VALUE Calian Technologies Ltd. Trailing price/earnings ratio: 11.8 Ottawa-based Calian does things that are hard to explain and understand. The general idea is that it helps governments manage their work forces, primarily by outsourcing. Calian provides temporary staff in engineering, health care and other skilled professions, as well as systems engineering services for high-tech customers such as satellite makers. It also trades at a modest P/E ratio and pays a nice dividend.

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About the Author
Investment Columnist

Fabrice Taylor, CFA, publishes the President’s Club investment letter, for which he and The Globe and Mail have a distribution agreement. More

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