Hi there

[qeysersoze]

Hi all,

I'd been lurking on the old forums previously, and really appreciate the quality of the discussion on these forums, in particular the writings by some forummers are of very high quality

I've been investing for the past few years in a somewhat lazy manner (can't be bothered to track transaction costs and precise gain/loss), which is roughly along the value investing lines that the majority here espouse. I guess I've not been a total failure at investing in the past years 'cos my returns have roughly exceeded index returns by a small margin.

Something I'm curious about is this - there is very little discussion on management quality &/ majority shareholder commitment when evaluating a company. This is a key criterion for certain big names, e.g. Buffett, and is personally a precondition to investing for me.

So, is the above factor important to you guys, and how do you evaluate it? Personally, I try really really hard to read up on the background of key managers and controlling shareholders, and hook up with people who personally know or have worked with them. Thus far, companies in stable industries, with smart and industrious managers/owners have done very well for me. I buy very few newer companies 'cos it is very difficult for me to do sufficient due diligence.

Comments?


Q

[Musicwhiz]

So, is the above factor important to you guys, and how do you evaluate it? Personally, I try really really hard to read up on the background of key managers and controlling shareholders, and hook up with people who personally know or have worked with them. Thus far, companies in stable industries, with smart and industrious managers/owners have done very well for me. I buy very few newer companies 'cos it is very difficult for me to do sufficient due diligence.

Hi and welcome!

Personally, the quality of Management and their competency is something which is very difficult to evaluate objectively, and is also notoriously hard to measure. As far as this aspect is concerned, I will look for the track record of Management's decisions to determine if they have quality, and whether they deliver on promises. The tone and content of the Chairman's Statement is also important to judge the character behind the person running the company. Read a few years' worth of AR if need be, to understand the Management better.

Better still, meet the Management and judge for yourself. There are no hard and fast rules but in general, after you've met a variety of CEOs and MDs, you begin to see differences in how they behave and interact with shareholders. This is another key aspect I like to observe.

[valuestalker]

Better still, meet the Management and judge for yourself. There are no hard and fast rules but in general, after you've met a variety of CEOs and MDs, you begin to see differences in how they behave and interact with shareholders. This is another key aspect I like to observe.

Agree with you.
Whenever possible i will try to attend any AGM of my companies at least once. I have liquidated an S-Chip (Chinamilk) after attended their AGM and not convinced on the CEO & Chairman's gesture and in-confidence.

Although it is a bit too primitive to say the least.
but i rather being not right than totally ignorant.

[mikh]

Something I'm curious about is this - there is very little discussion on management quality &/ majority shareholder commitment when evaluating a company. This is a key criterion for certain big names, e.g. Buffett, and is personally a precondition to investing for me.

Comments?

Q

Hi Q, agree with you that management quality and shareholder motivation should be important criteria. While AGMs and public pronouncements do help, there is a need to understand too that these are all PR situations where key players may mask their true selves. But it at least offers us a glimpse. I was rather re-assured by the Chairman’s handling at the last SPH AGM, but less so by 1 of his staff and the company auditor. At another company’s AGM, one of the shareholders lamented that he could not get an Annual Report available on arrival. The excuse given by staff was that he arrived late and those that the company brought had been exhausted. That to me is a poor excuse, and reflects badly on the staff organizer on 2 points (poor PR and poor organization). How difficult is it to have the foresight, and act to make available slightly more copies than the number of seats in the room?! And, I recall this was not the first time for this particular company.

Listening to comments from people who have worked with them or in their organizations would be helpful. This requires a different skill set to draw conclusions. But indeed this is how forummers can help each other by sharing because we all have experience in different organizations, some listed and under discussion.

Shareholder motivation can indeed as MW mentions be watched for over the years and compared. Another way would be to observe their handling of related businesses.

I for one would definitely welcome discussions and sharing in this direction. It is tough to evaluate this area, but it is important. I believe accountants in this forum will agree that reports and statistics can be massaged, so it’s wise to look beyond the basic number crunching to properly evaluate the merits of a stock. It’s the people that can make any business prosper or fail.

[qeysersoze]

Thanks for the feedback!

It's interesting to hear how others carry out their research/due diligence in this area.

It is a bit easier for me to check on some companies because of the nature of my work (corporate finance related), so sometimes I do get to meet the managers I would like to size up.

Apart from the above, which can be hard to come by, and even if it does, good management means squat (IMO) in a company that's in the wrong industry - which for me means any industry which just happens to be hypercompetitive, eg cars, airlines etc - I tend to associate management quality with ownership and a laser focus on core business.

Which leads me to frequently buying shares of businesses which are tightly family held, because intuitively I also like people putting their money where their mouth is.

This is really not scientific... so comments?

Q

[mikh]

It's probably true that managers in hyper competitive industries have to be good. But then, they have to compete with equally good competitors.

I feel that tightly family held ones have their own issues in that they are likely to have less regard for minority shareholders, may practice family management styles, and will also have less share liquidity. There are pro's and con's for each, so its hard to generalise. There are some studies on the success/failures of different types of organizations.

Perhaps the 3 banks are an interesting example. DBS is govt led. UOB is family while OCBC is more diversified. While OCBC has been able to use outside talent at the very top, it does not happen for UOB. But one could argue that the family in UOB is a source of strength and there is no "replacement" for the patriach; even from outside. DBS is likely a Temasek appointee with a govt way of doing business.

Again, it may be different for smaller companies. I agree that the problem with all this non-number area is that it is indeed hard to be scientific but its nice that you can gain a different perspective from the managers' work, at a deeper level.

I note that quite a few Sg listings have families in the management. Some bring in an external chairman. Is it generally that Sg family listed businesses are better run? Or perhaps resources are more "wasted" by the family with corporate decisions not effectively executed?