When we are looking to buy a share in a company, we usually go through financial data. We look at how good or bad the earnings are or how much debt the company has taken on. However, there are some other things that should be looked at as well. One of these things is management.
Management is to a company, what a captain is to his ship. The ship can be the best ship in the world. If the captain sails into the cliffs, it will sink.
“Don’t find fault, find a remedy. ” ~ Henry Ford
Let’s look at what we want to find out about a company’s management.
Who do they work for?
Good management works for the company, not for shareholders. Good company management will make decisions that benefit the company.
As an investor, you don’t want the management to worry too much about you. When the company has had a bad year or incurred huge costs because of an investment, it’s ok for them to decrease or cancel the dividend. We don’t want a company that struggles, to do share buybacks or pay dividends, just to be in favor with the shareholders.
On the other hand, we do not like it when the management is fooling us either. If management is messing around with numbers to report higher earnings, that says a lot about the integrity of the management.
Do they have a vision?
In order for a company to make you money, it has still to be around in the future. One thing that is crucial for a business to survive and remain profitable long term, is vision.
When I am assessing a company, I want to see leadership that has a vision based on long – term sustainability. What I would want to see:
- Waste reducement
- Employee satisfaction
- Investment in key technology (online services, AI, automation)
- Environmental conservation
- Strong focus on improving efficiëncy
- Conservative use of debt
” People calculate too much and think too little.” ~ Charlie Munger
Looking at a company’s vision will improve your understanding of the company. This will help you to decide whether it is wise to make a long term investment in that specific company.
Do they achieve their targets?
Every year a company states its future goals. Thus, when assessing a company, it’s a good practice to go through annual reports of previous years to see what targets they’ve set and if they succeeded in delivering what they promised.
This does not only show whether or not they have been capable to perform as they have intended to. It also shows how good the company management is at realistically predicting future capabilities.
Who is the management?
When evaluating management, we like to look at the top management positions. We like to see high-level executives that have been with the company for a long time.
Do some research on the executives that manage the company. Do they have a good reputation? What have they done before? How long have they been working for the company?
Knowledge about the executives and the decisions they have made in the past can provide valuable information about how the management might react to future events.
” Leadership is the capacity to translate vision into reality. ” ~ Warren G. Bennis
Are management executives selling their shares?
High-level executives usually have shares in the company and receive shares as a form of compensation. Checking how much shares executives own and if they are selling or buying shares of their company is important.
Executives selling their shares can indicate that the company doesn’t have good prospects or that the company is seriously overvalued.
If the company leadership is buying shares, it can be an indicator that either the company has some very good prospects and news to reveal, or that the shares of the company are undervalued.
Looking at “insiders trading” is a crucial part of my assessments. However, don’t put too much emphasis on this alone. You can use this information to compare it with the assessment that you have done. Take this for example. You made an assessment of a company and came to the conclusion that “Company X” is doing great and that its shares are undervalued. However, when you look at the “insiders trading” information, you can see the management executives are selling many shares. This could be a red flag indicating that you might have overlooked something in your assessment. In this situation, it would be wise to find out why management is selling their shares.
You can easily find information about the management and their shares when you google “Company X, insiders trading”.
Related content: This is how you get high returns in the stock market
Consider following this website to learn more about investing and productivity!
*DISCLAIMER: The content on this website is made in good faith and I believe it is accurate. However, this content should be considered informational and not for making financial decisions.