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STUDYING THE MANAGEMENT TEAM IS IMPERATIVE

April 16, 2024
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Management can make/break the greatest of investment decisions you make. Study the CEO, CFO & COO

 

INTRODUCTION 

You entrust your hard-earned money to a team of human-beings, and they need to be exceptional in every aspect that matters.

 

Do not make the mistake of studying the moat of a business, spend endless hours analysing the financial statements and doing complicated valuations in order to pay a fair price then overlook this critical part of the process.

 

The Mission Statement

This speaks volumes to managements ability to communicate with the world. It must be clear and concise. The mission statement must be focused on what the company does for its customers and keep employees focused on the objectives.

 

An amazing example is from Lemonade Inc

Harness technology and social impact to be the world's most loved insurance company.

 

Two horrible examples are from American Standards & Dell:

Be the best in the eyes of our customers, employees and shareholders. What do these people do?

 

Dells mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve. Remove Dell from the name and you could be talking about just any computer company on earth. Vague and lazy.

 

Experience and Previous Successes

If there is any history of previous fraud or irregularities amongst the management team, walk away. If you cannot trust the management team, you cannot trust the numbers. Auditors place significant reliance on the things management tells them. Unethical leadership will run circles around the auditors.

 

The first prize is investing with leaders who have experience in the specific industry you are looking to invest in if you want to see exponential growth. Personally, I do not want the CEO of FNB to take over BHP Billiton and vice-versa. Connections and networks are often industry driven. We want well connected management who can talk their way into and out of negotiations seamlessly.

 

A track record of previous successes speaks volumes. Successful people have a way of continuing to succeed and the opposite is also true. Lets take Elon Musk as an exampleThe Boring Company, PayPayl, Neuralink, Tesla and yet everyone including NASA doubted SpaceX. Elon might be an extreme example, but history has a way of repeating itself. Study those CEOs.

 

Founder-led businesses

Full disclaimer: I love investing alongside founders. They are passionate and passion is priceless and profitable when you find the right founders.

 

Research proves:

  1. Founder-CEO companies invest more aggressively than their peers in research and development (R&D), capital expenditure (capex), and mergers and acquisitions (M&A)
  2. They grow revenues at a faster pace
  3. Their share prices have outperformed peers over the 5-year period to December 2021

 

Founders also have significant skin-in-the-game (share ownership). A very large proportion of their personal net worth is attached to the companies they start. If the company fails, they go broke. If the companies succeed, we get filthy rich alongside them. Think Bezos, Zuckerberg, Musk etc.

 

Where do you find all this information?

  1. Google News
  2. Set Google Alerts
  3. Wikipedia pages of the CEOs and CFOs
  4. LinkedIn pages of the CEOs and CFOs
  5. Glassdoor.com ratings of the Companies and CEOs
  6. If you want to track insider ownership there are many websites. I personally like FinViz, InsiderTracking.com or I simply read the company financials and the JSE SENS Announcements

 

Coming Soon

I am going to write a whole article on Should You Be Concerned When Insiders Sell? It deserves its own article because I see many people panicking for trivial reasons and ignoring the red flags.


 

 


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