Editor’s note: Midwest Investment Management Partner Elmer L. (Al) Meszaros spent the last few weeks of 2003 traveling throughout the Northeast and Midwest, meeting with managers of corporations whose stocks are currently held in client portfolios at Midwest Investment Management, or are under consideration for purchase. We asked him to share some of his findings in this interview.

Editor: Al, even though so much information is available on the Internet and elsewhere today, you maintain that on-site research is necessary, and benefits clients in the long run. Can you elaborate?

Meszaros: Our reasoning is simple. On-site visits fall into the category of “qualitative” research. Meeting with companies and visiting their facilities provides us with a greater understanding of their true advantages and their probability of future success. In fact, all of our analysts have been meeting face-to-face with corporate managements for decades. Although the quantitative disciplines we apply are critical, our qualitative research—that is, personal visits to corporations and their facilities—is equally, if not more, important.

Our qualitative research process enables us to understand why a company has been successful and whether a durable advantage exists for the future. We attempt to understand managements’ plans and thinking, and make a judgment about the feasibility of executing those plans. Strategies are sometimes similar, so execution is what sets the successful corporations apart.

Editor: Can you offer any examples?

Meszaros: Our meeting with Bob Tillman, the CEO of Lowes stores, convinced us that Lowes possessed superior merchandising skills, superior inventory systems versus its peers, and had feasible growth plans—advantages not likely to disappear soon! Countless meetings with Wells Fargo Bank, Charter One Financial, and U S Bank led us to conclude that those organizations had the ability to execute their business plan in a very crowded industry.

Editor: Those are stocks you purchased for client portfolios. Tell me about companies whose stocks you did not purchase.

Mesazros: Visits to numerous companies exposed us to managements who were thinking about profitability, capital expenditures, competitive advantages, or other issues. But many had weak strategies or not very credible action plans. So we pass on those stocks.

Editor: What are some of the most interesting visits made by the firm’s analysts?

Meszaros: I have visited BP Oil’s Prudhoe Bay oil field on the edge of the Arctic Ocean. I also flew in a helicopter far out into the Gulf of Mexico to meet with the crew on an oil rig. All of our analysts visit company facilities, no matter where they’re located. My colleague, Norm Klopp, went into a remote town of Quebec to personally check on the progress of an iron ore pellet processing plant. To borrow a metaphor about buying a used car, these were situations where we were out “kicking the tires.” As the old saying goes, “you don’t know what you don’t know.” Many of our visits uncover surprises that either confirm or cast doubt on our previous thinking.

Editor: It sounds like qualitative research is vital to the prudent assessment of stocks for client portfolios.

Meszaros: On-site visits to corporations are just as important as ever. They provide us with a better understanding of a company’s true advantages and the probability of its future success. We’re willing to go out of our way to verify the claims of corporate management. At Midwest Investment Management, my Partners and I have concluded that understanding the qualitative drivers inside a company, blended with quantitative disciplines, continues to provide a rewarding approach for our clients.

Editor: As this issue of PERSPECTIVE went to press, Norm Klopp was leaving for his round of visits with corporate managements. Norm will share his findings in our next issue.