How to tell if the company has good management?
We all know that good management is important when investing in a company. But how do we indeed tell if the company has good management?
We cant possibly go up to the CEO and ask for an interview right? And the annual report only tells you the good stuff.
how do we indeed tell if the company has good management?
[Image: board-of-directors1.png]
I think you first have to define what is "good management".
I come from a IT and governance background. According to ISACA 's COBIT5 which I am familiar with, effective governance is one that acts in the interest of the stakeholders, whether the business owners or the public who owns shares in the company. To me, it simply means that the management adequately rewards stakeholders like myself when the means of doing so is available and has a demonstrated track record of doing so.
Note, I didn't say anything about transparency. This is because it is not an outcome of good management but an enabler. I am also skeptical about this so-called transparency. Like you mention, easy to say, hard to do. I always recall how China Aviation Oil won the SIAS award for being a transparent company only to have it blow up within the year!
There is a relevant thread on interviews with Mr. Yeo from Yeoman Capital Management. One topic discussed was on "right" management on stock selection. The thread might provide hints on the answer.
http://www.valuebuddies.com/thread-3877.html
(01-01-2014, 04:01 PM)CityFarmer Wrote: [ -> ]There is a relevant thread on interviews with Mr. Yeo from Yeoman Capital Management. One topic discussed was on "right" management on stock selection. The thread might provide hints on the answer.
http://www.valuebuddies.com/thread-3877.html
sum up what Mr Yeo Said
- at least 5 years listing history complying to listing rules
- show earnings track record
- Check management salaries, are they paying themselves or shareholders?
- provide some dividends, no slash in dividends
- maintain healthy balance sheet
- no diluting actions
- no funny acquisitions out of line from business focus
- play golf with management and get to know them better
hmm.... this looks pretty easy to check. much easier than walking into their office for an interview
(01-01-2014, 06:00 PM)wahkao Wrote: [ -> ] (01-01-2014, 04:01 PM)CityFarmer Wrote: [ -> ]There is a relevant thread on interviews with Mr. Yeo from Yeoman Capital Management. One topic discussed was on "right" management on stock selection. The thread might provide hints on the answer.
http://www.valuebuddies.com/thread-3877.html
sum up what Mr Yeo Said
- at least 5 years listing history complying to listing rules
- show earnings track record
- Check management salaries, are they paying themselves or shareholders?
- provide some dividends, no slash in dividends
- maintain healthy balance sheet
- no diluting actions
- no funny acquisitions out of line from business focus
- play golf with management and get to know them better
hmm.... this looks pretty easy to check. much easier than walking into their office for an interview
Easy? It is a more structure way, but it will never make the "check" any easier, IMO.
(01-01-2014, 09:28 PM)CityFarmer Wrote: [ -> ] (01-01-2014, 06:00 PM)wahkao Wrote: [ -> ] (01-01-2014, 04:01 PM)CityFarmer Wrote: [ -> ]There is a relevant thread on interviews with Mr. Yeo from Yeoman Capital Management. One topic discussed was on "right" management on stock selection. The thread might provide hints on the answer.
http://www.valuebuddies.com/thread-3877.html
sum up what Mr Yeo Said
- at least 5 years listing history complying to listing rules
- show earnings track record
- Check management salaries, are they paying themselves or shareholders?
- provide some dividends, no slash in dividends
- maintain healthy balance sheet
- no diluting actions
- no funny acquisitions out of line from business focus
- play golf with management and get to know them better
hmm.... this looks pretty easy to check. much easier than walking into their office for an interview
Easy? It is a more structure way, but it will never make the "check" any easier, IMO.
structure is good! it ensures you stay on the right track and do the right things.
if u got a better method pls teach I am all ears
(01-01-2014, 10:27 PM)wahkao Wrote: [ -> ] (01-01-2014, 09:28 PM)CityFarmer Wrote: [ -> ] (01-01-2014, 06:00 PM)wahkao Wrote: [ -> ] (01-01-2014, 04:01 PM)CityFarmer Wrote: [ -> ]There is a relevant thread on interviews with Mr. Yeo from Yeoman Capital Management. One topic discussed was on "right" management on stock selection. The thread might provide hints on the answer.
http://www.valuebuddies.com/thread-3877.html
sum up what Mr Yeo Said
- at least 5 years listing history complying to listing rules
- show earnings track record
- Check management salaries, are they paying themselves or shareholders?
- provide some dividends, no slash in dividends
- maintain healthy balance sheet
- no diluting actions
- no funny acquisitions out of line from business focus
- play golf with management and get to know them better
hmm.... this looks pretty easy to check. much easier than walking into their office for an interview
Easy? It is a more structure way, but it will never make the "check" any easier, IMO.
structure is good! it ensures you stay on the right track and do the right things.
if u got a better method pls teach I am all ears
I will never assume I am better than Mr. Yeo. At the same time, I always reminded myself, the art of the "check" will never an easy one.
It is not easy to identify good management.
It is very easy to identify bad management.
Good management may not produce superior investment result.
Bad management will most likely produce poor investment result.
With this logic, more can be achieved by avoiding bad management (1 foot hurdle) than finding good management (7 foot hurdle).
Make things more complicated, even if you find good management you will still have to couple it with good business and good price. (more 7 foot hurdles).
Invert, always invert.
Good point.
However, that still means that you may end up with inferior investment result.
You will not end up losing money, but you may not end up getting the results you want.
Another round of sifting through the companies is still require.
I suppose you still need to cross the > than 7 hurdles eventually.
It is never easy to identify good management.
Even good management can make wrong decisions too.
Identification of good management is almost always on hindsight.
Since I cannot fully rely on this information, I trust numbers more than good management.
(02-01-2014, 03:08 PM)kagemusha Wrote: [ -> ]Since I cannot fully rely on this information, I trust numbers more than good management.
Specifically what numbers do you rely and trust?
