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5 Sep 19, 27 tweets, 5 min read
Assessing mgmt isn’t a science & often access is limited. Look for thoughtfulness. Look for people you can tell are not motivated just by money. Is there an entrepreneurial culture? Look for people who think long term. Lots of mgmt teams will say the right stuff, but is it true?
Reading the transcripts, CEO interviews, CEO letters, presentations on YouTube and other company materials, attending a few meetings, studying the company history etc should be enough to start to get a feel for whether you like management or not.
Some questions to think about...
Ask management which companies or CEOs they admire? This question is not trying to get an idea for a stock pick, it is to try to understand who management have been learning from and why, what books are they reading?
Glenn Greenberg asks this on share repurchases “...whether the cash return on a capital project is as good as the return from buying back stock, they generally look at us as though we’re speaking in a foreign tongue.”
Pat Dorsey looks for thoughtful answers to questions. Ie answers and actions specific to the business and the industry it operates in.
Quotes from Marathon in Capital Returns:
Marathon “...go into meetings looking for answers to questions such as: does the CEO think in a long-term strategic way about the business? Understand how the capital cycle operates in their industry? Seem intelligent, energetic and passionate about the business?”
“The primary purpose of our company meetings is to assess the skill of managers at investing money on behalf of stakeholders. Meeting management is not a scientific process...it involves making judgements about individuals, an activity which is prone to error.”
“Too often, the CEO mistakes a short-term target...with a strategy...Real strategy...involves an assessment of the position one finds oneself in, the threats one faces, how one plans to overcome them, and how opponents might in turn respond.”
Qus from Welch: “...what does your global competitive environment look like? In the last 3 yrs, what have your competitors done to alter the competitive landscape...what have you done to them? How might they attack you in the future? What are your plans to leapfrog them?”
“To unsettle the more promotional CEOs, we like to ask what is not working and wait to see whether they have given the matter much thought.”
“How the CEO interacts with colleagues, such as the CFO or IR personnel, often reveals their leadship qualities.”
Marathon also look for signs of curiosity and humility. On the other side they look for signs of vanity. Management approach to costs and frugality are also important.
Old interview with @mjmauboussin

Includes some thinking on what to ask management:

fool.com/investing/2016… Image
Great link to a podcast and transcript on assessing management teams [note there is a transcript]:
mawer.com/the-art-of-bor…
Some great ideas on lines of questioning and more questions here:
How Phil Fisher asked his best questions: “But his very best questions always popped out of his mind, unprepared, never having been written down in advance because they were the angle he picked up on the fly, as he heard an answer to a lesser question.”
Image
Interesting White Paper on listening and asking questions: mosaicprojects.com.au/WhitePapers/WP…
Adding these two filters to the general thread on questions:
Adding some colour around compensation and incentives to this thread on assessing mgmt - note Third Point questions if compensation relies on TSR.

Great presentation [added to this thread on questioning / assessing management]
Questions Baillie Gifford ask:
Useful framework for management interviews:
Good quotes / questions
Four criteria for assessing management

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More from @AReviewOrTwo1

AReviewOrTwo Profile picture
28 Jul
It is important to learn the right lessons from both mistakes [commission & ommission] & things that go well. I often find people focus their learning on mistakes & less on the latter or learn the wrong lessons or see patterns that don’t exist

Some thoughts on trying to learn...
1/ Missing out on something with a high optical valuation... the lesson is usually not ‘be willing to pay any price’ or ‘quality at any cost’ it is ‘why were your numbers / expectations too low’, ‘what did you miss about the business’
2/ When you lose money because something bad happens to the fundamentals, try to break things down:
- Was there a mistake of analysis before buying?
- Did you miss a change after you bought?
- Was it a portfolio mgmt error in not cutting & putting capital elsewhere?
- Bad luck?
Read 10 tweets
AReviewOrTwo Profile picture
18 Jun
15 things that I think about when trying not to sell a good L-T idea:

1. Be prepared to give up P&L in the S-T, L-T winners are often volatile

2. Monitor consistency between narrative & fundamentals. Imagine the destination & the key drivers. Use patterns to help navigate
3. Understand why something is persistently mispriced (confidence in a mispricing means you are less likely to sell)

4. Have a well balanced portfolio of great cos, never let a position become so big it owns you / can take you out of the game
5. Form independent views and rigorously test your thinking by yourself, a lot of people will have opinions about the future without knowing much about a situation, you need a strong filter... sometimes not listening is a good thing...
Read 11 tweets
AReviewOrTwo Profile picture
20 May
Uniqueness, hard to replicate / imitate is such an important concept...
Helmer: There must be some aspect of the Power conditions which prevents existing & potential competitors, both direct & functional, from engaging in the sort of value-destroying arbitrage Intel experienced with its memory business. This is the duration aspect of Power [7 Powers]
Kay: Successful strategy is rarely copycat strategy. It is based on doing well what rivals cannot do or cannot do readily, not what they can do or are already doing. [Foundations of Corporate Success]
Read 5 tweets
AReviewOrTwo Profile picture
21 Dec 19
Good analysts don’t just consume a lot of detail in an academic fashion. They build knowledge in a purposeful, strategic way... some of the things they do include:
- Identify critical biz drivers & pressure points / risks
- Weight the most important information correctly
- Understand how management think, what they want & what they are motivated by
- Always benchmark their views to the expectations they believe are discounted in the price
- Form independent views from a variety of sources
- Are creative in how they think (both in how they think about research & how they think about a company or industry)
- Filter out ideas quickly (eg based on risk / downside, circle of competence or lack of an expectation gap)
Read 8 tweets
AReviewOrTwo Profile picture
18 Dec 19
In trying to find L-T winners, I try to think about the following features [non-exhaustive]...you might only realize that these features are present after you own the co & know it better...features are easier to identify in hindsight, but the present often feels more uncertain
1) A company creates value for customers in a way that others find hard to replicate [in particular I have enjoyed reading @bradsling on NZS and whether it would matter to customers if a bomb fell on the company's HQ]
2) A company can capture a portion of that value in economically profitable business model, but still leave significant customer surplus on the table
Read 7 tweets
AReviewOrTwo Profile picture
29 Jul 19
Was just revisiting some writing on LTV / CAC type analysis... I love it how @mjmauboussin was writing on this in detail in 2004: “The Economics of Customer Businesses, December 9, 2004”

This is a timeless piece of work including so many first principles...
“One of the keys to successfully analyzing a business is getting down to the most basic unit of economic analysis. For many consumer-oriented companies, and especially those that rely on a subscription model, the basic unit of analysis is the customer.”
“...the current accounting system does a very poor job of revealing the difference between a good and bad customer.”
Read 10 tweets

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