Looking Beyond the Numbers

Jakob Fugger was born in 1459 in Augsburg, Germany into a wealthy merchant family. He is widely regarded as one of the richest people who ever lived, estimated at $500 billion USD inflation adjusted today. 

At 14, he was sent to Venice, the Wall Street of the 15th century. That’s where he learned the secret: money doesn’t just move goods. It moves people. And people run the world.

When he returned home, he took the family cloth business and turned it into something unrecognizable. He didn’t just sell. He invested. In silver mines. In copper. In trade routes. In popes and princes. Fugger understood early that the real return doesn’t come from goods, it comes from leverage i.e. when important people owe you money.

In the early 1500s, he was financing emperors, buying popes, and reshaping Europe’s power map from a desk in Augsburg. But there was one thing he hated more than losing money: not knowing where it went.

So he did something radical for the time. He adopted and perfected double-entry bookkeeping. A system where every transaction has two entries, one credit and one debit. Today, it’s just accounting. Back then, it was revolutionary.

Fugger didn’t invent it. Merchants in Venice had been experimenting with the method, but Fugger took it from dusty ledgers and turned it into a financial weapon. He used it to track mining investments in the Alps, shipping ventures in the Mediterranean, and bribes to the seven electors of the Holy Roman Empire. His ledgers weren’t just books; they were the key instrument for controlling his empire.

What made Fugger different wasn’t just his wealth. It was how he used information. Most people saw money as gold coins and land deeds. Fugger saw it as data. And in a world with no Excel, no internet, and no Bloomberg terminals, he built a system that let him know in real time what was owned, owed, and how much profit he was making.

His greatest bet came in 1519. He loaned today’s equivalent of tens of billions to Charles V to help him win the throne of the Holy Roman Empire. It worked. Charles won. And Fugger didn’t just get his money back. He got access, monopolies, mining rights, political sway.

The total payoff? He became the richest man in the known world. Richer than kings. 

He was the only person to have a direct business relationship with the Roman Curia. He loaned money to the Vatican to build the St. Peter's Basilica, the Sistine Chapel, as well as other buildings within the Vatican. He held the power to force the Church to raise taxes until his debt was repaid. 

Fugger’s legacy isn’t just in cathedrals or royal debts. It’s in every balance sheet, every income statement, every accountant’s notebook. The lesson is timeless: The more clearly you see your money, the more power you have over it. Fugger didn’t get rich by guessing. He got rich by counting twice.

Accounting is the language of business. Investors must understand the language to gauge the health of a business. 

Financials tell us about the past and present but aren’t very good at telling us the future. 

We investors love to project the future with linear up and to the right financial projections. The future loves to mock our financial models and estimates.

The difference between your financial model and the outcome you get is management.

A business always rises and falls to the quality level of management’s decision making.

Talking to management to understand their strategy is the only way to see the future. The art of talking to management is imperative when investing in small public companies. 

Legendary investor Phil Fisher would make it a point to become an expert in the business he was evaluating prior to talking to management. He is known for saying an investor won’t know the right questions to ask until they do all the upfront scuttlebutt research. I believe this is true for small-mid-large caps, but not nano-microcaps. 

When investing in small public companies you can’t afford to wait until the end of your due diligence to talk to management. Why? Oftentimes one management conversation unearths differential insights that make the company completely un-investable or 3x more interesting than you orginally thought. I normally talk to management earlier in the due diligence process after I have a broad understanding of the business.

In general, I’m trying to get these core questions answered:

• Can the stock double in three years based on conservative fundamental assumptions and no multiple expansion? 
• What could go wrong (customer concentration, reimbursement changes, new legislation, churn, etc)? 
• Do they need to raise money (dilution)? 

I find in person meetings are by far superior to phone or zoom. I’ve conducted hundreds of management interviews and on many occasions one statement, shift in body language, made an investment investable or not investable at all. With in person meetings there is no where to hide.

Gary Channon, founder and CIO of Phoenix Asset Management, takes it a step further and only does management meetings in pairs or threes. 

“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.”

Ironically some of my biggest errors were when I made assumptions after only looking at the financials of a business – when I didn’t go the extra mile and talk with management. 

When looking at the financials I might assume that a profitable business won’t need to raise capital. In the moment, I feel silly even asking management, but I do. Management admits they are looking to raise capital for M&A. Do they have the experience and proper board to make/integrate a successful acquisition? Will they overpay? How are they going to raise the capital? Are they going to hire a lower tier investment bank? I may pass on the opportunity.

When looking at the financials I might assume that the current growth rate is sustainable. I probe deeper and find it’s because of one large contract that is set to run off. They may not have offered this information if I asked them directly, but it came up indirectly while talking about customer concentration. I may pass on the opportunity.  

We investors love to default to laziness. Often our spidey sense goes off, but we don’t follow up with management: 

• Perhaps a boring money losing company subtly mentions “acceleration” or “breakeven” in an earnings call or earnings release, but you don’t follow up.
• Perhaps a CEO makes a significant open market purchase, but you don’t follow up. 
• Perhaps it’s your past experience with a company under a different management team, “this business has always been a dog with fleas”. You don’t meet the new management team. 

It’s always these situations where we are distracted, lazy or biased. Then someone else does the work you were supposed to do and captures the 100-400% discovery gain. All you can do is sit back, grit your teeth, and criticize the stock move to help justify your laziness. 

All your best professional moments in life came/will come when you’ve overprepared – when you’ve done the work and the person or group you are trying to impress can tell you’ve done the work. It's the same for management meetings.

The work you do prior to management meetings allows you to keep the conversation friendly and conversational, not an interrogation. Your preparation also allows you to adapt with the flow of the conversation. 

I don’t even like to use a notepad or write down anything during a management meeting. Management won’t be as free with words when they see you writing down every word they say. When you are writing you aren’t listening. When you are writing you aren’t watching them. In fact, writing during a meeting takes away much of the benefit of in person meetings. 

You can’t expect your first 5-10 management meetings to go perfectly. It takes time and reps. Roger Federer’s backswing looked so effortless because of the tens of thousands of hours in practice and preparation over a lifetime. It takes time and effort to make anything look effortless and productive. 

In a world where almost every investment professional is using AI tools to gain an edge, ironically today's real edge is your willingness to go the extra mile and gain new insights from management teams.

Well-formed management conversations can unlock differential insights that you would never be able to gain by looking at financial statements. In the end you must do both to understand the past, the present and the future. 

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