Stock Picking: Former Employees Can Help You Find a Winner

 |  Includes: DIA, QQQ, SPY
by: Mariusz Skonieczny

Knowing what others don’t know about particular companies can give you an edge. However, the majority of investors rely solely on what a company’s top executives provide to them in annual reports and proxy documents.

If you are serious about finding winners, speaking with former employees can reveal information that is not written in any publicly available documents. Why do we want to speak with former versus current employees? Because the current ones are usually scared to tell you anything negative about the company or its management and former employees have less to lose. Also, it is usually better to speak with employees that held lower level positions because they haven’t been trained to watch what they say like employees who have held executive level positions.

I don’t really have any scripted questions when I reach them on the phone, but usually I say something along these lines: “Hi, my name is Mariusz and I am calling you because you used to work for XYX company and I was just wondering if you could tell me what it was like and whether you would recommend it as a good place to work?” It won’t take long to find out whether they are willing to share information with you. Usually, once they realize you are not from the FBI, they loosen up and start talking freely. It is important to realize that you are not looking for any illegal information, but you simply want to learn about a company from the perspective of any employee.

Before you start dialing random numbers, you first need to learn how to locate former employees. I like to use LinkedIn’s Advanced search feature (click to enlarge):

Then, type in the name of the company such as Cal Dive International (CDIS) and select “Past” for former employment as shown below (click to enlarge):

Note: Cal Dive International is a company I bought for $8 per share. Because of the bad quarter and the oil spill in the Gulf of Mexico, it is currently trading for about $5 per share.

After you click “search” you will get a list of people (click to enlarge):

Usually, the list will not contain any names. Let’s click on the fourth position which is for the Purchasing Manager at Unique Systems, LLC (click to enlarge).

At this moment, you still don’t know who this person is, but you do know that he or she was a purchasing manager at Cal Dive International. Just type in the name of the current position, purchasing manager at Unique Systems, LLC, and former positions, purchasing manager at Cal Dive International, into Google’s search box (click to enlarge):

When you scroll down through Google’s results you will find an identical profile with a full name (click to enlarge):

You can compare it with the old private profile to make sure everything matches and that’s how you know you got the right person (click to enlarge).

Next, find a phone number for the person’s current employer such as Unique Systems, LLC, and call. You probably have to get a list of ten people to reach six, and from the six, two will not want to tell you anything and the remaining four might help you discover a winner. Good luck and let me know if this was helpful.