We Love Due Diligence
by John Valentine, contributions by Genevieve Valentine

Due diligence is a term I am sure you have heard a hundred times from our office. Although our office has been relaying information to all of you for years about what we do here at Valentine Capital and our due diligence, writing about the same topics can feel mundane and boring. We felt how many times could we write about cash flow, dividends, and basic economics without wanting to scream. We didn’t know how to make it any more interesting than we did in previous newsletter editions. It took my niece Genevieve actually attending a due diligence trip, just last month, to remind me of what the core of due diligence and Valentine Capital is all about.

Genevieve  loves interacting with our clients and learning about the world of economics, but I think her eye opening revelation on due diligence came from a Welton’s workshop. Taped on one of the computer monitors on their trading floor was a note that read “BE the best of the best, for finance is personal and benefits others.”  Genevieve mentioned this quote to me many times after that trip. She reminded me that regardless of the field you are in or where your heart drives you, it is important to be your very best. Finance is personal, writing is personal, being the best you is personal, but when you are able to turn your “personal” bests to benefit others if makes it personal for everyone. We are (I am) here to serve you, guide you, educate you, and help you make the best financial decisions for you and your family. Our newsletter doesn’t simply provide you with financial facts, we serve you with our words, which makes our newsletters personal to you.  Because of this and although we sometimes write from a very dry academic view point, I (we) hope you all know that due diligence is also about informing you, educating you (although sometimes boring), and providing you with the ins and outs of our service to you, our clients. With all of that said and done, here is a summary of our recent due diligence trips set to serve you.

As you are aware last fall, our office conducted a series of due diligence trips back east to visit Superfund, Willowbridge, the New York Mercantile Exchange, and the Chicago Mercantile Exchange. (To reread about our previous trips, please visited our November 2008 Newsletter.) In order to continue or due diligence efforts, our office has not only continued these trips and interactions, but we have also invited our clients to participate in the due diligence process.

Since February 2008, a handful of our clients (a new group monthly) and our advisors have been visiting the Welton corporate office in Carmel. These monthly workshops are designed to educate our clients on futures contracts, to understand Welton’s investment monitoring practices, as well as experience and see firsthand what life is like behind the scenes of the commodity industry. It is exciting to seeing all of the charts, graphs, and movement in Welton’s trading office, but like I mentioned before it was the quote on a Welton’s computer monitor that was the most personal to me because of Genevieve’s new found since of excitement about economics and our firm’s commit to serve to the best of your ability.

During this meeting, clients and advisors had founder and president, Pat Welton speak to them. After touring the trading desks and back office in action, Mr. Welton conducted an informal questions and answer. He explained the differences between the futures market and the stock market, how trends in the market must be observed, tracked, and analyzed, and the importance of diversification to limit volatility and unnecessary risk. He stated, “It is my job to know and have a relationship with fund managers and investment managers. These relationships develop a sense of trust and congruency, which oozes trust down to investors. It is not only my fiduciary responsibility, but my responsibility as a human being, to care about those I work with and for.” I think this statement is important. Maybe this is what is at the core of due diligence?... We care and are actively trying to make the best, educated, financial decisions for you.

Last week, to further our due diligence, I met with Leo Wells, president and founder of Wells Real Estate. Leo Wells is probably the most down to earth human beings/investors I have ever encountered. He used humor, dairy farming analogies, and a white board and sharpie pens to illustrate this philosophies and experiences with real estate investing. Coming from a farm town myself, it was fun to hear about finances in terms of a dairy farm’s production and work ethic. You do have to get your hands “dirty” and “callused” in order to provide others with a good service or product.  Wells’s detail and elaborate explanations about a concept was always followed up with a summary of the facts in order to make sure that everyone listening understood what he was sharing with them. He would probably make a really good college economics professor.

Before my encounter with Mr. Wells at the Wells Stockholder’s meeting, we had a private breakfast meeting from 7:30am to 10:30am. From our energetic conversation and participation at the stockholder’s meeting, I re-learned and further gained knowledge on the effects of government bail outs on the real estate markets, the life cycle of real estate management, the importance and criteria for portfolio diversification, the effects of a potential commercial real estate bubble, inflation, the importance of risk reduction, and the fear driving many investors. Mr. Wells and I even discussed future Well’s real estate purchases, the profiles of these locations, and how these purchases will affect the risk and diversification.

 Wells throughout his meetings stressed his number one importance in investing, which is driven around developing personal relationships and friendships, always openly communicating investment strategies and implication of those strategies, and that trust is vital. Like he said, “If you can’t trust someone with putting your best interests first, then don’t invest with them.” I think my favorite quote of the day by Wells was “Sometimes you just need to let go, when in your best interest, and allow the professionals to do the job you pay them to do.” 

Although it is nice to hear about sales quotes and philosophies during these trips, due diligence is more than just listening to what someone claims he/she is doing. Due diligence is like putting cameras into their boardrooms, offices, and trading floors. This kind of due diligence is to VERIFY what is being said and seeing the confirmations, trades, business decisions in action and MONITORING their activity. In the case of Wells, it is actually going to the “dirt” to see if the land and location is what Wells says it is. It is imperative to know more than just what they do, but to also important to get your hands dirty, to become familiar with their systems, personally know the traders, the custodians, and the processes involved in the business. This is why our compliance director John Boylan flew to Atlanta to review property profiles, visited site locations, and became familiar with Wells selection process. Due Diligence is about not only talking the talk, but walking the walk.

Our firm loves obtaining words of wisdom, which I am sure you have noticed, but I have realized that the due diligence trips and writing our newsletter is about serving you words of wisdom and the words of wisdom from some really smart investment professionals. But it’s not only about providing you with word cliques, due diligence is our way of holding those that we work with accountable for their words and actions and it is our job to tell that we are being diligent in our efforts. I hope my words and the words we relay to you serve you and benefit you today and days to come.

"This article is for general information purposes only and should not be considered a recommendation to buy or sell any security, or of a specific investment strategy.  Please consult a financial advisor regarding your specific situation prior to implementing an investment plan.  Past performance does not guarantee future results."