How do you get management to talk about things they don't want to talk about?

Gary Channon is the founder and CIO of UK based Phoenix Asset Management. The firm oversees £1.8 billion across a series of closed end funds. 

The flagship fund has produced an 8.4% CAGR since 1998 which may not impress people, but there are always things we can learn from someone that has invested for almost three decades.

I recently listened to this interview with Gary Channon. You will enjoy it too. Gary is a great conversationalist.

Channon’s passion for investing began in childhood at a naval boarding school where he discovered the Financial Times. At 12, he made his first stock purchase, Johnson and Firth Brown, with a letter to his bank. His second investment, Poly Peck, turned a £50 stake into £2,000 before the company was revealed to be a fraud. By age 15, he had turned that initial capital into £50,000 through UK privatizations, becoming what he calls "his most confident self". However, personal hardships, including expulsion from school and family struggles cut his education short.

Channon began his career in in 1987, hired as a Japanese bond trader despite having no qualifications. He taught himself derivatives, later joining Goldman Sachs. But the pivotal moment came in 1995 when he read Roger Lowenstein’s biography of Warren Buffett. The book sparked an epiphany: Channon realized his calling was long-term value investing. He used his employer’s resources to teach himself the craft and in 1997, launched Phoenix with his savings and help from colleagues.

Channon’s goal was to create a concentrated, long-term value fund. He aimed to run no more than 15 stocks, invest only when a company traded at less than half of his estimate of intrinsic value, and hold positions for many years. 

Today Phoenix uses a proprietary evaluation system called DREAM (Dynamic Relative Evaluation and Assessment Model), developed to objectively score businesses, management, and price. Each component is rated by depth of research, confidence, and intrinsic quality. DREAM requires two analysts to complete a company evaluation, and scoring is documented and revisited regularly. This structured feedback loop helps reduce bias and improves learning from past mistakes.

This is the most interesting part, at least to me - they only invest in businesses where there is enough transparency to allow them to see the business separate from whatever management is telling them. In other words, Phoenix only invests in companies where they can use primary research to get a pulse on the business. The team avoids sell-side research and uses mystery shopping, site visits, and competitor interviews. For example, when evaluating Travis Perkins, feedback from builders helped the team delay investing until evidence supported the company’s pricing power.

The team maintains detailed “snap DREAM” reports for watchlist companies and conducts full DREAM evaluations only when an investment is made. They also document reasons for discarding ideas, which helps when analyzing missed opportunities.

What also makes Phoenix unique is they have fully embraced AI. They are heavily investing in AI to augment the research process. Each team member is building AI “agents” named after Venetian figures to automate tasks such as idea generation, monitoring, and competitive mapping. Tools scrape websites to analyze homebuilder sales, funeral trends, and other sector-specific metrics. Channon believes AI will massively reduce sell-side roles within two years and already finds AI-generated reports more useful than most analyst work. He uses multiple AI tools to cross-check hallucinations and increase accuracy. 

Their strategy is a barbel in that they have fully embraced AI but also rigorously prepare for management meetings. I think stock pickers will enjoy these two questions and answers:  

How do you get a management to talk about the things they don't want to talk about?

We don't have a meeting with management until the end. So be an expert when you arrive. Don't rely on management to educate you.  

We would rather see a competitor first. If you really want to learn about management's weaknesses, hear it from their competitors. They are very happy to share. We also try to have something useful to share with management and be value added. We always have management meetings in pairs or threes. We never go on your own - writing things down, trying to do the questions and then trying to remember afterwards. My memory is not what it was, but I used to have a complete recall. But with multiple people you notice how management looked at each other when you said X. A single person could miss that. So having multiple people in the room helps. 

We plan for a one-hour meeting, and we might spend four to six hours preparing for it. What are we trying to learn? Let’s hypothesize XYZ is the case, how do we get that out of them? How do we get them to share something not price sensitive but commercially sensitive? 

There are many techniques you can use – You can put numbers or words in people’s mouths and let them correct you or if they don’t their face will tell you something. If I’m gauging integrity, I might take them down a path where they might agree, and later on I’ll produce a piece of information to see if they contradict something they agreed to earlier. Do they care about being correct and truthful or is their appearance more important and are they willing to be slightly untruthful. Are they open with telling me all the negatives? Those people are very rare

We also have a charisma red flag. It’s almost better to not meet with them at all. If a CEO is charismatic, we have a cooling off period. I won’t go to those meetings so I can remain objective. 

How do you stay detached when you are friendly with management and own a stock for a long-time? 

The goal is to have a relationship with management where your ownership position is never a baggage between you. Our best relationships with management are actually the ones we’ve owned the stocks several times over a couple decades. Management knows they are doing well if we are reducing our position. And to be honest if the stock is trading well and your taking some off the table management is happy – they don’t hold it against you. Management is getting rewarded as well with a higher stock price.

We do watch out for endowment bias, but we’ve made several corrections that limit it as part of our process. We are more than willing to sell down a position and buy back later. 

What I have learned through time is the probability of being correct – so a stock that you’ve owned for a long-period of time and had a lot of access with management, the value of that is very high in terms of how likely we are to be right or wrong about the future versus a new position.

If you enjoyed this article you will like The Art of Interviewing Management by Chip Maloney.

_{MicroCapClub is an exclusive forum for experienced microcap investors focused on microcap companies (sub $500m market cap) trading on United States, Canadian, European, and Australian markets. MicroCapClub was created to be a platform for experienced microcap investors to share and discuss stock ideas. Since 2011, our members have profiled 1000+ microcap companies. Investors can join our community by applying to become a member or subscribing to gain instant view only access. MicroCapClub’s mission is to foster the highest quality microcap investor Community, produce Educational content for investors, and promote better Leadership in the microcap arena. For more information, visit https://microcapclub.com/ and https://microcapclub.com/summit/}