Management interviews: the most underdeveloped skill in investing | Ross O'Toole

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0:31All right. Hello and welcome to the Another Value Podcast. I'm your host, Andrew Walker. Today, we've got a slightly different one for you. Ross O'Toole, who wrote the book, I'm holding up for those of you on video, Breaking the Script. Breaking the Script, there'll be a link in the show notes. Of course, you should click on that and go read it. It is only about 75 pages, I'd say. So it's a super fast read. But Breaking the Script is all about management interviews. And look, I find management interviews fascinating. And I will admit, I was also thinking about podcast interviews when I was reading the book, but it's all about how to improve management interviews.

1:02And I find management interviews fascinating because I use the term double edged sword on a different piece in the interview. But I find them to be a double edged sword. Right. Management teams are very skilled and they talk to a lot of investors and they're very good at telling a story. So I always walk away from them saying, hey, am I having the wool pulled over my eyes? How much can I trust that? I just gained false confidence by talking to a management team that kind of reassured me or am I finding out new information? And look, I think they're vital, even if you're like me and a little bit of a skeptic and a little bit worried about getting the rule put over your eyes.

1:31I will tell you they're so useful because if you've got a bad management interview, it can be such a red flag and it can save you from so many disasters. And I will not say the name of the company right now, though. If you're an OG who's been listening for about a year and a half, you can figure it out. I did a management interview last year that set my hair so much on fire that I instantly published the public letters to the board because I was like, this management team is going to destroy this company if they're not if they're not held accountable. So, you know, even if you don't think the upside is there, which it might be on the downside protection that's there.

2:00And hey, half the game is avoiding the downside. Right. So anyway, Ross has written the book. We're going to dive into how to improve your management interviews, taking notes, all sorts of stuff. We'll get there in one second. Link to the book in the show notes. But first, a word from our sponsors. Today's podcast is sponsored by Fiscal.ai. Fiscal.ai is a moderate financial data provider for global equities. equities. In addition to their web-based terminal, Fiscal is one of the leading data connectors for Cloud and ChatGPT. With their self-serve API, you can connect in real-time fundamental data directly to your LLM.

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3:02Unlike other providers, their data updates within minutes of earnings reports, not days. So whether you want powerful out-of-the-box terminal or the real-time AI connector with API, you can use my link at fiscal.ai.yav. Y-A-V, that's fiscal.ai slash Y-A-V to get 15 % off. And there'll be a recommend show notes too. All right. Hello, and welcome to yet another value podcast. I'm your host, Andrew Walker. And today I'm happy to have, for the first time, I'm holding up, he wrote the book, Breaking the Script on Mastery Management Interviews. Ross O'Toole. Ross, how's it going? Good. Thanks for asking.

3:35How are you? Doing good. Doing good. Excited to talk about the book and Perfecting Management Interviews, which is something I've done a lot of thought a lot about super excited to talk about that before we get there disclaimer nothing on this podcast investing advice I don't even know if we're going to talk about socks today but people can see the disclaimer in the show notes and at the end of the podcast speaking of in the show notes I'll include a link to Ross's handy little again I'm holding my copy up my daughter put a little sticker on it right here I'll include a link to Ross's book in the show notes so that if you hear this and want to learn more about management interviews and stuff we can dive in there.

4:08But let's dive into the interview. So, Ross, you wrote this book. Let's start. Why did you write a book on conducting management interviews? Yeah. So I've been investing for 25 years. And I think over the last five or 10 years, it just I kind of realized that there really isn't anything in the public domain or things that I've seen. I've read over 500 investment books that are specifically related to the investor management interview. And I found that sort of surprising, since for fundamental investors, a large part of our job is talking to management teams. And I've worked at four or five different asset managers, and it's just something that's never kind of handed down, at least at the firms I've worked at.

4:51And there's nothing, well, there's books about valuation or competitive advantage. There really wasn't anything about how do you actually conduct this interview. And so I had originally thought that I would have a book of questions. I had a large book of questions that I would just keep adding to over time. And then that slowly turned into, well, maybe I should actually address like some of the principles and tactics of doing an interview. And it's a book I wrote for myself. I thought if I was coming out of college and I was starting a career in investment management, I would buy this book. I would want to have a reference guide to some of the key tactics or principles that you can use.

5:29and I thought the way I set it up as just sort of a reference book that if you're an experienced investor, there are still, you don't have to read it front to back. There are still parts of the book that I hope that even experienced investors would go, oh, that's actually pretty interesting. I should incorporate that into my process and so that's the reason I wrote the book. No, it's spot on and it's so funny you say that when I was reading the book and I can prove I read it as I told you. Where is it? Bottom of page 41, I caught a typo. So there you go. Anyone can go read it and see. Andrew, actually, when I was reading, my first thought was, man, if I hired an intern or a first or second year, this would go right to the top of what I want them to do.

6:08And particularly, you know, I say first or second year, but depending on the program, they might not have first or second years like leading interviews, like whenever they're transitioning to leading interviews, this goes right to the top. And as you said, that's not to say that someone who's in their 20th year couldn't benefit from that because I was reading it and I was like the whole time I was actually thinking oh man these notes don't just apply to management meetings like i want to apply these notes to how i conduct podcast interviews right like it's just how to do interviews but so i'm with you let me go into the management interview itself you know my first just is stepping away from the book you know as an investor my big worry with management interviews is that management gets the top because they are good sales people right like and that doesn't mean sales people in terms of like used car selling they're just good at selling themselves They have to be.

6:56They tend to be much more personal, all this sort of stuff. They probably, depending on the day, are dealing with multiple investors a day. And they probably deal with more investors than I deal with management teams, right? I kind of worry that whenever I'm going into a management interview, if you don't know who the patsy at the poker table is, you're probably the patsy. I worry that I'm the patsy at the poker table. And despite having all these skills, it's very rare that I walk away from a management interview and think, oh, that management team just like embarrassed themselves. So are management interviews as valuable as you and I seem to think they are, where we probably invest, every company we invest in, we're probably talking to management.

7:36We're going to conferences and doing tons of management interviews. Are they as valuable or are we kind of deluding ourselves? It's a good question. And it's something that I've thought about myself. And I don't actually know what the answer is. I think to a certain extent, we want to believe that we're very good at reading management teams. This industry is a lot of alpha personalities. You have to be both confident and humble to be a good investor. So I think there's an aspect of it. If you have a career in this business, you think you have good judgment and you think you can decipher what management team is telling you the truth and which one is not.

8:19We probably overestimate our ability to do that. But on the other hand, there are benefits to having this conversation with management. And there are, again, techniques that you can use to hopefully get to better responses. I mean, one example would be, and I think Howard Stern does this well. It's called poking. I have a chapter on poking. And it's - You mentioned Howard Stern and two other interviews. Yeah. Yeah, in his world, he's asking like a provocative question, usually about one of his guests' relationships. And it sort of embarrasses or makes his guests laugh. But he's sort of doing that on purpose up front, and he'll kind of continue to do that through the interview, because eventually it sort of breaks down this wall that his interviewee wants to answer the question.

9:08And I think that's one of the dirty little secrets about interviews and people, is people really do want to talk and people do have a hard time lying and so if you construct your interview and kind of continue to come back to the same question and i think asking follow-up questions in different ways where it's the same question but just just ask differently it's hard for someone to keep a straight story unless they're actually telling you a story that's That's believable. That comes back to, there's that movie with the confidentiality. They have that police scene where he's got two suspects in different rooms and he's playing them off each other.

9:53Because, you know, and that's why police do, will ask for someone's story once and they'll bring them back in and ask for the story again and again. Because if you're lying, you will end up not being able to tell the story the same way all the time. So it's kind of a long way of answering. It's unknown if it's helpful, but as a fundamental investor is a big part of our job. I do think there are benefits to it. I think the benefits are probably more from longitudinal. If you can talk to the same management every quarter, year after year, you're going to start to discover whether they're more credible or not, because you're going to have a baseline.

10:29So that's helpful. and uh you know i think it's not necessarily for me it's not necessarily about the numbers there are like asking the atypical question is a good example at the end of the day you're there is an aspect of you're trying to find out the ceo or cfo do they think logically do they have uh are they nice people are they just good like and not even outside of the business aspect because that businesses are run by people. So you actually, you hit on a lot of things that I wanted to touch on on this interview. So rather than try to dive into the six different things that you touch on, because I think we'll hit them, I'm just going to stick with my kind of script that I prepared.

11:10But, you know, one of the things I was thinking about is I'll go and I'm a journalist. I'll look at any company. If I'm interviewing and let's choose two diametrically composed companies, a coal company CEO versus the CEO of a plastic surgery company, right? Those are two wildly different tasks, right? Should I be grading them on a scale? Because the plastic surgeon, again, I have trouble investing in things that do medical sales because they sell to doctors and those guys are just like the kings of salespeople. And I'm always like, oh, God, little me sitting in my corner, sitting in my not corner, in my closet of an office, like I'm going to go and they'd be like, Dude, we try to sell plastic surgeons $100 ,000 worth of surgery equipment in five minutes.

11:58This investor who wants to buy stock, like I'm a fish to them versus a coal company CEO. You know, not that coal company CEOs are going in and, you know, actually swinging the pickaxe anymore, but they tend to be a lot sleepier or small bank CEOs, small insurance companies. Should we be grading them on a scale or should we kind of have the same scale for everyone? No, yeah. Let me think about that for a moment. Well, I think you could do it either way again. I mean, it's like the end of the day, like the interview in your example, and maybe not trusting the medical device company CEO as much because that industry, it's extremely important to be good at sales.

12:44And so you're running the risk that they're pulling the wool over your eyes in terms of what they're telling you. I mean, the management interview is just one part of our jobs, right? So that comes back to more of the mosaic theory in that you'd have to marry that interview up with what you're seeing in the financial results with maybe what you're reading in other expert network calls, with what you're talking to the sell side or other analysts about to come to a fuller picture. The interview itself would probably give you a false idea if you're only relying on that. Because you're also kind of playing into some of your art and it's not just yours.

13:25We all have our own individual biases, right? The bias that, hey, I don't maybe when I go into an interview with a medical device CEO, I might come in not trusting that as much as if I go and speak to a CEO of a coal company where I feel more comfortable about that industry. And so I'm more inclined to believe what they tell me. let me let me hard switch to a different question a lot of your book is based on i'm investing and you can tell me for wrong but it's kind of i think the baseline interview you're structuring for this is i'm investing in maybe not necessarily a berkshire hathaway style compounder but i am investing in a good company you know i'm probably investing in a good company at a good price or i'm looking to invest in a good company at a good price and hold it for three to five years is kind of like that's I tend to be a little more of a bottom feeder and I think a lot of people listen this more event driven bottom feeder deep value that sort of stuff and a lot of times when you're event driven deep value you're not looking for you know a good insurance company that's going to put up an ROE of 15 for the next five years or something you're looking for the company that hey guys our cost is over or the new plant six months behind and 50 percent over cost or, you know, we just blew earnings estimate and lost our largest customer.

14:49Our stock is down 50 percent. When you go to those calls, they tend to be more contentious. And I hate to say it, but like if you were holding the stock before, it's probably going to be pretty contentious. If you weren't holding the stock and you're coming in, it's still probably going to be a hard interview because you're asking, you know, when you're doing those types of stock, those types interviews, stocks down 50 percent, earnings are disaster. How does that change how you're interviewing the management team. Yeah, I think what I would tell you, at least in the book, is this sort of comes to the question around how you frame your questions, right?

15:24So you're going to make an already contentious interview more contentious if you use questions that start with why versus using questions with start with what. And I think this is one of the, to me, like one of the better chapters in the book. Because why when you say why, why did you miss results, as an example, versus what were the reasons that your results didn't meet your expectations? It's really the same question. But the why, it creates defensiveness, right on the part of the other person, they feel like you're almost attacking them. And it comes, you know, why did you do that? Versus what were the reasons you did that?

16:02And so I think if you're in a contentious mean, or in the types of situations that you are referring to, you in really, this works across all interviews, it is better to structure the questions with what you're gonna, you're gonna likely get better responses, you're gonna create that rapport that I talked about the book, you're going to maintain that trust, you're still asking a challenging question. But I think you are more likely to get an expansive response than if you attack the person's why question. So it's, you know, as we, as you're kind of alluding to in our total interview, and I mentioned this book, I can't, no one can give you the best questions to ask a management team.

16:42Every situation is different. Every interview is different. It could be the first time you met with the management team. It could be the fifth time. That's obviously going to influence the type of questions you ask. You're going to have a different rapport if it's the first time you're meeting with them, if it's someone that you meet every quarter. But, and that's why these are just tactics and sort of examples of things you can use to hopefully get better responses. I know this is a little bit of a tangent, but I'm thinking about it right now. So there's Cameron Crowe, the filmmaker that Almost Famous has a new biography out.

17:16And he has a section in there where he's 14 and he's interviewing Chris Christopherson, who was a musician and actor in the 1970s. And he asked him a question and Christopherson doesn't give a great response. And Crow is 14. And so he's like, oh my gosh, this is going to be a terrible interview. And so he almost not by choice is silent. And that silence then is filled by Christopherson who starts talking and sort of spilling his guts in a way. By the end of the interview, Christopherson tells Crow, he's like, this is one of the best interviews I've ever done. You're one of the great, you're such a great listener and i think there's aspects of that that you can take into the management interview or any other interview but the management interview too where you're trying to create the space for them to be able to just you know to to talk and these framing of questions like why versus what i mean if you feel like you're being attacked you're more likely to button up you're more likely to give yes or no answers you're more likely to not want to be totally honest with someone whereas if you feel like the person's on your side, is really trying to understand the reason behind what happened, not like you suck, then you can frame things like this way, and you're likely to have a better conversation.

18:36It doesn't mean you will. And it doesn't necessarily mean, I mean, this is the other dirty little secret. Like, is this going to lead to better alpha? I mean, at the end of the day, it's what we're trying to do, right? We're trying to pick stocks that we can generate alpha on. But I do think it can give you a fuller picture and a clear understanding of where management needs are coming from. And you still have to use your own judgment that you know let's pick on that so you mentioned generate alpha i mean you're right right like everything as an investor everything you do should be in the pursuit of alpha in some way shape or form right uh does the management interview techniques you know it strikes me again just to come back to my question on different sectors are they more useful in some sectors versus others and i'll give you an example i said coal earlier right well if you're With a coal CEO, if you are the best coal CEO of all time, I'm not saying you couldn't create value, but you're still going to be kind of limited by your assets, the environment.

19:30There's a lot of stuff that's outside your control. Now, a great CEO is a great CEO, and they kind of find a way. But a great CEO in coal versus a great CEO in tech, right? Mark Zucker, like, why is MySpace gone and Facebook is dominant? It is Mark Zuckerberg, right? So do you think the management interviews matters a lot more? Or like if somebody came to me and said, hey, I just don't want to do management interviews. Could I say, oh, cool. Go focus on my example. Cool. Or if somebody said, I think I'm awesome at management interviews. Would I say, hey, biotech and tech. Those are the two areas where you can get the most alpha.

20:04Do you think there's something to that? Or do you think it kind of cuts across disciplines? I think that's fair. I do think there's probably I think that probably speaks more to what you mentioned earlier. where if you're a deep value investor and you're more reliant or your process is more dependent on a reversion to mean type strategy. So a relative, you know, a quality company, or it could be a non-quality company, gets to the point where it's, you know, every stock has its price kind of thing. Like, it's just cheaper than what it really is for the quality of the company. I'm not sure, like your coal example, It may not matter as much to have a management interview with that CEO.

20:51It might be like, hey, this company is trading at a 50 % discount to its asset value and net asset value. And I think that gap will close over time. That might be all you need to know. You might just need to study the financials and know how cyclical industries work and have a view on the commodity price. and management isn't really management is definitely not responsible for commodity prices so that that's a different situation versus if you're trying to look at uh yes the technology company if you were studying meta or facebook earlier in its career you might want to have a you might want to understand mark zuckerberg's vision what how does he see the world developing over the next three to five to seven years and how is he positioning his company to compete in an industry where technology moves very quickly and that you there's more qualitative responses and quantitative answers in a financial statement that are going to be more important to you to get comfort or conviction around your investment around the investment you know it is funny you say you say zuckerberg because i said zuckerberg right but it's funny because if you interviewed zuckerberg i don't know in 2008 2009 his vision almost would not matter right because it was still Facebook desktop, right?

22:15But what would have mattered was, I think with the people who backed him, you would have been like, hey, this is like an N of one CEO and he'll figure it out, right? And you hear that so many times when I talk to VCs, they're like, oh, I invested in this guy and I actually kind of think the business is building a shitty, but he'll figure it out. Like, this guy is awesome. And it is funny because I wonder if a management interview, if you had given me foresight of the next 20 years, except for who the winners were, and I'd gone and interviewed Zuck in 2008, I think I would have said, Facebook is toast, right?

22:43The mobile shift is coming and these guys are going to be dead. And by the way, there's this startup app called Instagram that is going to eat all the young people. And you would have been totally wrong, right? He would have bought Instagram. He would have convinced them his stock was worth$2 billion instead of$1 billion. It's just interesting how that happens. And would the interview have helped you or not, I guess would be my question to you. Yeah, it's a good question. I mean, look, I'm old enough to remember when Google went public and obviously Facebook went public. And, you know, in retrospect, Amazon, the same thing.

23:11In retrospect, these seem like they were easy investments, right? But when Google came public, the stock went down the day it went public, right? They did it. They did an effort in IPO. People had concerns. It actually went down the day they came public. Facebook broke IPO price. Facebook went down 50%. I think it IPO at like$36 a share and fell to$18 because CNBC was every day on the news. It was right at the time, like the iPhone was coming out, right? The mobile was taking over. They were predominantly on advertising business on desktop. And the market immediately thought, are they going to make this transition?

23:52And then, of course, they did. And it seems so obvious in retrospect, of course, like it's Zuckerberg, it's Facebook. They were always going to be dominant on mobile. But, you know, in a way, this is a different discussion about markets and narratives and how quickly they can change. But yeah, I mean, I'm not sure. I think if you had had a conversation with Zuckerberg and he was able to explain to you why he thought they could make the transition to mobile, I mean, hopefully you could ask some smart questions or at least get further information to give yourself conviction that everything you were seeing on the news was wrong.

24:24Because it is pretty amazing that that stock fell 50%, like very shortly after its IPO. Earlier, you mentioned, hey, a lot of these are better if you're interviewing management over and over again, right? Like you interview them once. And again, this can be a problem if you're coming in and parachuting after a one earnings blow up. Like, A, it's a contentious interview. And B, you have nothing to baseline it off of. But let me answer on the repeat interview. So when I've done repeat interviews with management teams, you know, one issue I have is they say something. And when I'm trying to compare it to the last time, like human memory is frail, right?

25:01So how are you kind of benchmarking and keeping track of what happens over time? Because when I rely on memory, a lot of times I can forget or even in the interview, the management can shape my thing. Right. I'll ask some questions. They say, oh, well, if you remember when we talked about this last time and I'll kind of be like, is that how we mentioned it last time? So I guess the solutions are recording. Like I have thought, should I just record all my management calls? But, you know, that can be awkward. I say, hey, I'm going to record the calls. And there's like, well, OK, I'm going to be super buttoned up here because this is going to come back and bite me in court.

25:34Are you taking furious notes while you're doing it? Are you taking notes immediately after? Like, what do you think the best way is to get ready to do those repeat interviews with people? Yeah. I think this is actually unfortunate, in some ways unfortunate, that preparation probably is the most important part of the interview. I mean, really good interviews start well before the interview begins. And you're addressing this point. Like, in an ideal world, you would have enough time to go back and review your notes that you would have taken really good notes you could read again maybe the last four to eight transcripts and you would go into that interview and your memory would be a lot better than just trying to remember what happened last time so i think preparation is a big part of of of all interviews and that that's that's true outside of the uh investor management interview process.

26:31This is also something I've thought about that is this book going to be outdated very quickly because of large language models. I mean, large language models are pretty good. If you communicate with them about, if you data downloaded a few transcripts and your personal notes and said, come up with five or seven good questions, it can do it. A lot of that prep work and the interview process can almost be done by AI. In terms of your question around note-taking, that's also super interesting. What I found, at least in the research, is the ideal situation for interviews would be to go in with a lead interviewer and have a second person in the room that's lead responsibilities taking notes.

27:19It's very difficult to actively listen and to be able to think about what the person's saying and then also anticipate or think about the next question you want to ask them while you're trying to type or write out notes. Your brain is not sophisticated enough to multitask across all of that. And I don't take good notes. I wish I took better notes. I really do need like a note taker or to have my conversations recorded because my first focus has always been, I want to focus on the person I'm speaking to and give them 100 % of my attention. And I think I have better interviews for that. But the downside is I often walk out of them and either need to write down everything I talked about immediately, or I do end up forgetting it becomes just more of a, oh, I remember that was a really good conversation.

28:11And I remember thinking that I heard a lot of good things. And it leads me to believe it's a better fundamental I'm an investor. But if someone asked me specifics about the meeting, I'm kind of at a loss because I don't do well with taking notes and running the interview at the same time. It's very hard. So just to go back to what you said, it's funny you say, hey, I wrote this book and I'm worried it's instantly going to be obsolete because of LLMs and all the search stuff. And I actually would have a different view. So my view has been, and this is what kind of why I was thinking about recording and great note taking.

28:44I kind of think like LLMs and AI, it decreases alpha from alpha from some skills and it really amplifies alpha from another skill. And my contention would probably be like being a great interviewer. Now you have to get the data of being a great interviewer unlocks unique data, just unique data in terms of answers, questions and sort of stuff, which, you know, if you've got this AI that can analyze everything, I actually think being a great interviewer would increase because it's bringing in unique data. I actually think it's going to get rewarded in the future would be my contention. Now, again, you need to be a great interviewer and you need a way to get the notes.

29:21And that's kind of why I was driving to the note taking question, because if I could get it recorded and I could get management to answer because I asked a great question in a unique way, I can get unique insight. That's actually unique data that I have that no one else has. Now, it's you know, you can't get them to give you MMPI, but if the way they frame something is much different when you present correctly. I actually think AI would really amplify the alpha that comes with that. I'll pause there. Again, I've got plenty more questions, but I'll pause there if you want to respond to anything I just said.

29:50Yeah, I mean, I think even with large language models, I mean, I foresee a future probably where these meetings are going to be recorded, right? Because it would be beneficial to be able to upload your notes. And, you know, I've read a book about Amazon a few years ago, and it was really about like their six-page memo. And it was about a number of things they've done internally from an organizational perspective. And there was a chapter in there around their interviewing process. And when, you know, a candidate would come in and interview separately with maybe five individuals. And then they would have a team meeting the next day to discuss like everyone's perspective on that candidate.

30:34and what they found was if they're just taking notes and sharing the notes, it didn't really represent what actually occurred in that interview. And at least in Amazon cases, I remember it. They did have a note taker writing verbatim everything the candidates would say so that every other person that wasn't in the room could actually read exactly what the interviewer said. So I think in the, I think note taking, you know, I think in the future, we probably are going to have recordings with this. And yeah, even you're speaking to someone like broadly where I'm glad I didn't, this is somewhat of a side topic.

31:13I'm glad I was, I'm not 22 coming out of college and being an investor today with large language models, because it seems to me that a lot of younger analysts are using that as a first source. and what i was able to do because we didn't have that is i i was able to create these mental models or frameworks by reading a lot and developing sort of like industry points of view because our job at the end of the day is about judgment and whether or not large language models are going to take that away i mean i'm still in the camp that human judgment is going to be important particularly investing and so it doesn't you know i'm glad i i've developed those skill sets because i think I think it's just too easy to kind of outsource your judgment to other people.

31:56I mean, lots of lots of investors already do that with just like sell side research. They read a sell side research report and then they allow that to kind of dictate what they think of things. That's what Jim Chanos used to talk about work from the inside out, not the outside in. First place you start is really, you know, the SEC documents, read the 10K, read the transcripts, read the company presentation before you even look at anything else. Form an opinion yourself before you start taking information from other sources. Let me go. Speaking of information for other sources, non-SEC information, one of the things that jumped out in the book is you're asking for examples chapter.

32:31And what this means is, you know, simply if a company says, hey, we our new product saves our clients 10 percent per year. You ask for an example and they say, hey, you know, we worked with Starbucks and they cut their spend on napkins from a million to nine hundred thousand dollars with our product. Right. And that one just jumped out at me because I I have found the asking for examples to be one of the biggest two sided swords I've found. Right. Because I feel like the example can help you build so much conviction. And the reason you ask for examples is because humans, we are narrative driven.

33:07Right. So somebody says this is save seven percent kind of goes through your head. Right. But somebody says, hey, they give you the specific example and now you've got something to hang your hat on. Right. And the reason I found it to be a 200 sword is that it's a real conviction builder. And, you know, if I've got a great investment and they gave me a great example, that's always what I'm going to leave with. Right. But my biggest loss is when I look at them have been companies that have this great product or this great example of their product saving something. And they go and they give that Starbucks example and they say, hey, we helped our largest customer, you know, say 50 percent or grow 50 percent, whatever it is.

33:40And the companies do this on the call. Right. I was reading the Meta call last night, and Meta is calling out an Indian brand who they helped to grow by 95 % in a quarter with their AI. So companies know this works really well. The reason I say this, my biggest losses have been, hey, the company says it, and then guess what? The only person who used it was their largest customer or something. So I found it to be a double-sided sword, and this probably loops back to my first question where CEOs tend to be pretty good salesmen. And if you say, hey, give me an example of that, you've just teed them up to sell, right?

34:12So how do you think about the double edged sword of your asking for examples and like having examples help you build that conviction and help you build the story that we all are looking for versus my kind of bare case where, hey, they tell you this story and you've built conviction and that's the only good story they've got. Yeah, it's a really good point. And it kind of also relates to my point about asking leading questions where you just get management to kind of tell you what you already are asking them to tell you. So, you know, the obvious answer here is whenever you ask for examples, you should always ask for a negative example or even more than one negative example so that you get a balanced perspective from the management team.

34:58If they're going to tell you, to your point, here's all the customers that use it, then find out why the customers don't use it. Find out if you have a 5 % attrition rate, why are they attrity? And it's not perfect, but yes, I think as investors, we always have to think about the negative side. I mean, humans, generally optimists own the future, right? Optimists sound smarter, but optimists sort of own the future. And it's natural to always gravitate to the things that they're telling you well to your point like I've read tons of transcripts over the last 25 years rarely do management teams tell you um that things are going wrong even when things are going wrong they spin it into it's it's good like right and so it is a really difficult thing but I think you just you just have to always push for the opposite you'd always have to ask like give me for every positive example that they provide you say well I want to hear the opposite side.

35:55Tell me about a customer that you lost. Why did you lose them? It's not going to be perfect, right? No, it's just so funny. Like when I were prepping for the, one of the last podcasts I did was on Parks, which owns SeaWorld and SeaWorld and a few others. And I was looking at them and for four years in a row, 15 of the past 16 quarters, they've blamed poor results on bad weather. And it's like, hey guys, it's like eventually 15 of the past 16 quarters, bad weather, like you're stacking, Did it go from, oh, there was a little rain to, oh, there was Titanic-style typhoon sitting in our thing? Well, again, this comes to the scaling question, too.

36:35I mean, in your example with Parks, I would love to then ask that management team, on a scale of A to F, what grade would you give yourself in terms of your execution versus external environment over the last four to six quarters? and if they say like, well, we give ourselves a B plus, that's where that preparation comes in. You say, okay, well, you blame weather for those six quarters. Of course, they might not say, well, we really deserve a C minus, but it does give you an insight into, are they really being honest? And do you want to invest with them because of that? That's not, it's not an end all to be all.

37:14Most people are going to always overgrade themselves. But by starting there, And then if you followed up with a question of like, you know, you blamed weather for the last four quarters, do you want to reconsider your grade? It would be really interesting to see what they say. I think, you know, people, it's okay that management teams make mistakes, right? We all make mistakes. But, and I would generally want to invest in companies where the management team is at least realistic with what they've done and hear that, okay, yes, we didn't execute in this part of our market better and we need to do a better job.

37:45Again, it's one part. It doesn't mean you shouldn't make the investment. But I think we should all be a little bit concerned if a company is blaming weather for multiple quarters. But then, you know, we didn't ask them the question, but gave themselves like a high grade in their performance. It should make you step back and say, how do I feel about this? No. Well, two more questions. That transitions basically, you know, I think activism is a really interesting space in the market. And if a company blames whether 15 of the past 16 quarters, like that might be a signal for, hey, an activist needs to step in and kind of hold management's feet to the fire.

38:22Or, you know, there are a lot of proxy fights, like a lot of how do you think about conducting a management interview in a company that is under activist pressure? And I said in a few ways, like you're kind of on your hand, you're talking to the management team. You might be thinking about voting for the activist slate. The management team knows the activist slate's hanging over everything that they're saying. They might be under a little more pressure. How do you think about that dynamic when there's kind of an activist going on there?

38:50So I think this also kind of comes back to preparation. I mean, where management teams probably have more of a contentious relationship with their investor base is when their investor base doesn't really understand their business or the industry as well as they probably should, but has a high opinion of their perspective on what the management team should do. And I think that probably creates some unnecessary tension that if you really prepared, it might be a better conversation. So if you're in a situation like that, you really did understand the company and you really had a point of view. If it's rational, logical, if it's backed up by a true understanding of the business, then hopefully the management team, if you're addressing that, hopefully they would see their point of view.

39:42I mean, I think that's what the activists are probably going for. They believe they have a perspective on whether it's allocating capital or a strategy, a divestment that's distracting management teams or whatever it is. But if you just are like randomly saying, I used to divest this business or you really should buy back stock versus like making these capital investments or whatever. If that's all you're saying, it's just not. Management team could read through that you're not really that well informed and you're not going to get anywhere. If you go in and say, like, you have a better understanding of the capital programs, you have a better understanding of the ROI and that is relative to their stock price, and you walk through the math.

40:27Maybe even you have something written down and you show them. If at that point they're still pushing back, like, that's part of the conversation. Then that's part of your analysis of them and how they do things. I mean I think the really good activists they convince the management teams that they're right and a lot of times I've also heard the dirty little secret of the activism is you're getting the board and the management to do what they already need to do it's just you're providing cover for them to do it One more, you know I think it was Buffett, it was someone Buffett adjacent if not Buffett who used to ask hey you know if I if I gave you a silver bullet and you could kill one of your competitors, who would the competitor be Or I think another way for him, it was if you could only invest if you couldn't invest in yourself, but you could only invest in one of your competitors, who would you invest in?

41:15And I think I could be wrong. I think one of the way this is one of the ways he uncovered capital cities, right? Because he'd ask all the media investors and they'd be like, oh, Tom Murphy, that's who we'd invest in. I could be wrong. I maybe it's a failing on me, but I have never been in a management interview where someone has said that. And I've never asked that. And like, maybe I've just got a mental wall preventing me from it because I feel like if an asset, no, it's it's company dependent to again, like oil and gas company. Maybe they just pick someone because what does it matter if you're shell in Exxon?

41:50What Exxon does? It doesn't super matter unless you're this mess. But I've never asked that question. Have you tried that? Do you think that'd be a useful question? Because I don't believe it's anywhere in the book. yeah i i think i think i might have a similar question at the end of the book when i have just kind of a you got the big list of questions i'm looking at those yeah yeah i i mean this you raise a really interesting uh point here and i've definitely seen people on twitter kind of throw shade at that question no one ever asked it it's the dumbest question ever and And I go both ways on that.

42:24I think it's another way of asking the competition question, right? I mean, that's the other thing about management interviews is in all likelihood, we as investors are at 80 % of us are asking the same questions, right? It's like, what keeps you up at night? That's like the classic question, right? and I think if you do that and you ask that exact question they're used to that exact question they have a rote response board so finding a different way to ask the same question might get you a different response and that's sort of what the book is about like finding different ways to ask the same question because every once in a while all of us will come up with a super clever question that they've never heard before and it's really insightful.

43:15And even that might not necessarily mean you're going to grit alpha in the stock. But I do think getting management out of their PR answers by asking questions that they typically receive in a way that they've never received that question, you're more likely to get a slightly different response. Because like you said, a lot of times they might see eight investors in a single day and they're answering the same question the same way every day. So I, I do think that is an interesting question. Look, I mean, I think management teams probably do that. I mean, I would imagine, for example, like technology companies that are in the valley, they're probably talking to their customers or their vendors and saying, who's really good?

44:00What do you, what do you like? And that's how they all figure out what kind of acquisitions they should make. So that's not a dissimilar question to if you're, if you're an industry analyst and you're, you know, every, every, every year you ask that question. And then over time, again, this is where the long longitude comes in important, you start to get different responses. That's going to help you, you know, figure out like what's changing in the industry, who's making progress, who's falling behind. So I, I think that's actually can be an important question, especially if you're talking the same management team over and over again, over a multi-year period of time.

44:36Just two points of that. It is interesting because like the framing of which competitor would you invest in versus which competitor would you kill is actually it makes a big difference because I wonder how honest they would be on the invest side and on and I also wonder you know if their invest side would reveal themselves to be very pro cyclical and pro momentum and on the which competitor would you kill side it is funny because for the past 15 years in airlines I think if you had as any airline they would have said oh we would kill spirit, right? And if you were an investor, you said, oh, that's because spirits that is this disruptor low caught, they're eating their lunch.

45:11You would have gone bankrupt twice, right? They've had a hundred jobs, which are going to do and liquidated. And it's just funny because there is no, there's no perfect answer. Like management teams are just as blind as us, but, and to your point on getting management teams out of their comfort zone, like you're, you're definitely right there. It's very hard. I'm, I don't wear a suit, but you know, we're just guys on a zoom or in person going to meeting them and asking like a lot of the same questions that page 41 i mentioned it had the typo but it also had my personal favorite question that asked at the end of every investor meeting what are other investors asking that i should be thinking about or that i should be and i always pat myself on the back it's like oh yeah of course it's in ross's book but you know uh so we're all the same but i guess where i was writing was have you ever seen the interview hot wings yeah yeah but the reason that show is so successful is they get an actor or an actress and they give them the spiciest wings possible and ask them questions while they're doing it.

46:04So it takes them so far out of their comfort zone and they get a lot of real time, like interesting answers. And, you know, I wonder if we could do a hot wings management interviews, right? Where we take a management team out and it probably wouldn't be recorded, but you give them some super spicy wings. And then you start saying, Hey, we won't say why, but what were you, what was going on during Q3 when he missed earnings by 50 % after they have the, the jalapeno popper, super hot reaper wing, like that could get some interesting questions. So I think that's, yeah, I think in our world, that's, you know, how you structure an interview can be important.

46:38If, if you go into a meme, you should have hopefully an idea of what you want to accomplish for that meeting. Right. So if, if you have a meme with management and your most pressing question is something around the margins, I actually don't think, and I think this comes through in the book, I would not ask that question first, especially if it was contentious. You want to start off, I mean, it's not even bad to start off with a softball question. Ask the management to talk about their strategy, something they're going to get really excited about or their culture. Get them on your side. And as you build that rapport through the meeting, and it's like an arc, you're crescendoing up to it.

47:18Then you get to the margin question when they're kind of primed, when they already sort of like you and they developed like a relationship. And they're more, you know, hopefully they, you know, doesn't work all the time. Like nothing in this book works all the time. But hopefully you're going to get a more thorough answer at that point. You have broken them down a little bit. And, you know, this comes back to asking the pessimistic versus optimistic question. I mean, I do think a lot of times it makes sense to even be, to ask a question that you don't know the answer to. Like, you could say, you know, in my mind, I think you could do 20 % margins.

47:59And maybe you know they can't really get above 15. But you just throw it out there to see what kind of response you're going to get. And then you can follow up with like, walk me through the levers to that margin growth, which these are typical questions. But you can anchor the management team to a certain number versus just asking an open question, what should your margins be? Just say, well, when I do the math, I think your margins are going to be between 25 % and 30%. Tell me why I'm wrong. Versus just a different way of saying, if you ask it optimistically, your margins are going to be higher than 30%, right?

48:35You could say, I really don't think your margins are going to be 30%. And you it's just you're going to get different responses depending on how you ask the questions. And I think you have to think about the order of questions you ask. You want your harder questions to come a little bit later in the interview.

48:53Great. Cool. Well, Ross, I think we'll wrap it up there unless there's any closing thoughts or anything you want to hit people with. No, that's great. Thanks so much for having me on. I really appreciate it. Yeah. Ross Atul, the book is Breaking the Script. There'll be a link in the show notes if anybody wants to go check it out. I think it's just a great refresher on how to conduct management interviews or if you're in very unique case, podcast interviews, because I was thinking the whole time, how do I improve my podcast interviewing skills with this? And one of them was you mentioned earlier, I'm always just trying to remind myself at SCFU, SCFU, just stop talking and let the guests talk.

49:25So hopefully I did a good job that but Ross, it's been great. And we will chat soon. All right. Sounds good. Thank you. A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.