By Investment Master Class
“Never wrestle with a pig because if you do you’ll both get dirty, but the pig will enjoy it” Charlie Munger
“Study the company’s management, the leaders, their track records, and their goals” Roy Neuberger
“Management is one of the most important factors in the evaluation of a leading company and it has a great effect upon the market price of secondary companies” Benjamin Graham 1955
“The first thing is, is the management decent and honest?” Julian Robertson
“It’s hard to overemphasize the importance of who is CEO of a company” Warren Buffett
“We do not wish to join with managers who lack admirable qualities, no matter how attractive the prospects of their business. We’ve never succeeded in making a good deal with a bad person” Warren Buffett
“I never want to pay above intrinsic value for stock – with very rare exceptions where someone like Warren Buffett is in charge. There are people – very few – worth paying up a bit to get in with for a longer term advantage.” Charlie Munger
“Quality of, and incentives for, management are also very important. We look at management ownership to see whether their interests are aligned with the shareholders‘ interests and we look for their compensation levels to be reasonable.” Leon Cooperman
“My research [on management] always starts with the proxy, which I’ll read even before the 10-K. I want to know where the incentives are and can often qualify or disqualify a company for further research based on what the proxy tells me on that front. I have no interest in golden parachutes or egregious stock-option programs. If more than 10 pages of the proxy is devoted to executive comp, it’s probably not a company I’m interested in.” Frank Martin
“Of course, we have made mistakes when assessing management teams. But, in our view, trying to spot a great manager remains a game very much worth playing” Marathon Asset Management
“Good management gives you upside options for free.” Mohnish Pabrai
“Choosing great management teams is a key ingredient to hitting a high batting average” Steve Major
“In making both control purchases and stock purchases, we try to buy not only good businesses, but ones run by high-grade, talented and likeable managers” Warren Buffett
“In my books, I’ve always placed the emphasis on the importance of the management team in selecting companies… and yet, I didn’t do it enough” Philip A. Fisher
“When you asked me about characteristics I look for in stocks, I mentioned quality of management is the most important” Lee Ainslie
“Our biggest mistakes have always involved overestimating management” Bruce Berkowitz
“Most important is the character and brains of management. Poor management can ruin even a good proposition. The quality of management is particularly important in appraising the prospects of future growth. Is the management inventive and resourceful with a determination to keep itself young in a business way? Or does it have a sit and die attitude?” Bernard Baruch
“Marathon puts enormous weight on the assessment of management” Marathon Asset Management
“The quality of management affects the bond coupon only rarely – chiefly when management is so inept or dishonest that payment of interest is suspended. In contrast, the ability of management can dramatically affect the equity ‘coupons’.” Warren Buffett
“I really do believe in one premise – that management teams, in terms of their impact on value creation, is systemically underappreciated, both to the good and the bad.” Andrew Halvorsen
“Franchises can tolerate mis-management. Inept managers may diminish a franchise’s profitability, but they cannot inflict
mortal damage… a business, unlike a franchise, can be killed by poor management.” Warren Buffett
“We tended to buy the stock of companies that had franchises and good management” Roy Neuberger
“Mismanagement also can bring no end of trouble to otherwise fine businesses” Frank Martin
“The single most important variable for us when we’re looking at companies, is assessing management” Josh Resnick
“You need both great management and a great asset. Having one or the other is a bad recipe” Richard Perry
“From our perspective, an ideal management team is one with a clear strategic vision, a thoughtful and pro-active approach to capital allocation, and a strong alignment with shareholders” Dan Loeb
“I like to talk to management, assess their abilities and personalities, and understand their way of thinking so that we are on the same page. I am always friendly, and my intention is to look them in the eye and get a good sense of their character. This may seem an old fashioned way of judging people, but it’s very effective” Thomas Khan
“I do talk to management of many companies. I like to figure out their human values, the culture they nurture and their long-term goals.” Francois Rochon
“If there is a serious question of the lack of a strong management sense of trusteeship for stockholders, the investor should never seriously consider participating in such an enterprise” Phil Fisher
“It comes down to doing business with people you trust. We pay careful attention to all management communications. Does the CEO write the shareholder letter himself or herself? Do they tell you where they’ve been right and where they’ve been wrong? Do they talk about what’s difficult about the business? Do they articulate how they allocate free cash flow, and do so in an owner mentality? Are the key benchmarks consistent? We worry about companies that one year focus you on adjusted net operating EPS, then the next year on EBITDA margin and the next year on something else” Adam Weiss
“Benjamin Graham, in the Intelligent Investor, said you evaluate management twice in the decision making process. Once through face-to-face interrogation. You ask them questions and they respond and you make a judgement about the quality of their responses. In addition, the quality of management also manifests itself in the numbers: in ROE (absolute and relative to competitors), return on total capital, growth rate, industry position, trend of market share, and profit margins” Leon Cooperman
“More and more I think it is going to be important to study the paper trail of existing management. You have to understand how a manager behaves and how that manager has behaved in past situations. In general, you have to understand the history of that person’s behaviour to get an idea of what the future is going to look like” Bruce Berkowitz
“When we evaluate a management team, we’re much more focussed on analysing past decisions and actions than simply reviewing their responses to our questions” Lee Ainslie
“I spend most of my time reading everything the company has said: How has the business done relative to what was planned? Has management consistently done what it said it was going to do? ” Chris Mittleman
“The best judgement we can make about management competence does not depend on what people say, but what the record shows” Warren Buffett
“There’s no excuse for cutting corners when it comes to vetting management’s track record, verifying what they say is correct, and tracking if what they do is what they say they’re going to do” David Herro
“.. what you’re better off doing [than interviewing management] is sitting in a room and reading the last 10 years of what they said what happened, and then form your own conclusion of where you think the business is going to go in the future, rather than having them tell you about it” Mohnish Pabrai
“Rather than relying on meetings with management I instead rely on deep dives into firm’s accounting. If the company’s business hasn’t changed, and management hasn’t changed, my litmus test is the numbers. Don’t sell me a bill of goods; let me see what you’ve done” Charlie Dreifus
“The hardest thing is to find management that actually objectively behaves in shareholders’ interest as opposed to their own long-term interest. It comes down to a whole number of things – what’s their governance like, when they allocate capital, how do they allocate it? It’s not what they say, it’s what they actually do. A lot of people tell a good story, but their behaviour belies that” Bill Miller
“You want find management that is terrific in managing the business and presumably they have demonstrated that by the time we get involved. We ask them how do you measure your success at this company, by what means? We listen to what they have to say and make our own judgment. Sometimes you get answers such as ‘well if the stock price goes up’. Sometimes you find CEOs with screens on their desk watching their stock price all day long. That’s not a characteristic we find particularly attractive. My quick judgment would be their eyes are on the wrong thing. We are interested in how they discuss the reinvestment of the free cash flow they are generating, how they discuss the arrangement in their balance sheet, whether they use debt capital and plan to deploy it. At the end of the day, if this business can be quantified, then I wouldn’t have a job.” Chuck Akre
“The most important thing is the attitude of management toward their shareholders. I don’t think it’s very original to say you want to find managements that are candid and honest about the plusses and minuses in their business. If they’re not candid about the minuses, chances are their subordinates are not telling them what’s going on. I like managements that are not promotional or flashy, that seem to be interested in running their business and nothing else” Glenn Greenberg
“Managements of companies possess more information about their companies than you ever will be able to possess. Pay more attention to what managements do than to what they say. Remember, managements, like most other people, tend to act in their self-interest. It often is a favorable sign when managements purchase shares of their companies for their own accounts, and vice versa. Favor managements who are highly incentivised to achieve higher prices for their shares. ” Ed Wachenheim
“The problem arising from lofty predictions is not just that they spread unwarranted optimism. Even more troublesome is the fact that they corrode CEO behaviour. Over the years, Charlie and I have observed many instances in which CEOs engaged in uneconomic operating manoeuvres so they could meet earnings targets they had announced. Worse still, after exhausting all that operating acrobatics would do, they sometimes played a wide variety of accounting games to ‘make the numbers’. These accounting shenanigans have a way of snowballing .. These can turn fudging into fraud.” Warren Buffett
“Managers that always promise to ‘make the numbers’ will at some point be tempted to make up the numbers” Warren Buffett
“Don’t trust quarterly earnings. Verify reports through the source and application statement. Figures can lie and liars can figure.” Irving Kahn
“In the long run, management stressing accounting appearance over economic substance usually achieve little of either” Warren Buffett
“Charlie and I tend to be leery of companies run by CEO’s who woo investors with fancy predictions. A few of these managers will prove prophetic – but others will run out to be congenital optimists, or even charlatans. Unfortunately, it’s not easy for investors to know in advance which species they are dealing with” Warren Buffett
“It’s a Wall Street truism that good management is important to any company’s success, but the typical analysts report ignores the subject. Analysts prefer to discuss the latest numbers, but we never buy anything without assessing the leadership” Chris Davis
“Analysts are competent gatherers of facts and figures, but few can be relied upon for much more. Their assessments of managements are superficial and far too uncritical. I want a small group of hard workers who know their industry, who have plans for the future but can adapt to change, and who are shareholder orientated, in large part because they own a large chunk of stock themselves. We always ask around, get third-party opinions from the company’s suppliers and customers and others in the same industry” Ralph Wanger
“Broker/analysts rarely comment on management in any detail and if so they tend not to criticise. For many years, when presenting the importance of management assessment work, the following quote from Warren Buffett has been used by Marathon “After ten years in the job, a CEO whose company retains earnings equal to 10% of net worth, will have been responsible for the deployment of more than 60% of all capital at work in the business”. This confirms what we have, always believed, namely that a management can make or break a company. By far the greatest failing of broker research therefore is its inability to address the most important issue at a company, namely the quality of management” Marathon Asset Management
“We never meet with management. For all the bad asymmetries of being on the short side, one of the good asymmetries is that we don’t rely on the company. Those that are long the stock and are close to the company almost never hear the negative side in any detail. The biggest mistake people make is to be co-opted by management. The CFO will always have an answer for you as to why certain numbers that look odd really is normal, and why some development that looks negative is actually positive” Jim Chanos
“The real way to get a feel for a company’s strategy is through discussions with customers and competitors. Customers and competitors give you the truth. Management may or may not give you the truth” Chuck Royce
“Management always has a big influence on your success, no matter how good or how bad the business is itself. Management is always part of the equation of making the company successful, so the quality of management always matters” Li Lu
“The longer I’ve been in the business, the more I think management really makes a difference. The main question is, how do you determine if it’s a good management? The interview is not sufficient; it’s only a first step. Interesting though, studying the past record of that management more often than not is a pretty good indicator of what the future will be.” Preston Athey
“I try to know as much as I can about the nature of management” Mohnish Pabrai
“I’ve been fooled many times by being too impressed by executives who are articulate and have done well in the past. I’ve learned to be humble about my own opinions and rely more on the opinions of people who aren’t biased and have known the management personally or professionally for a long time.” Ed Wachenheim
“Given the availability of so much information on the internet, I’m not so interested in meeting management today. You can get seduced too easily. I’m more interested in finding out how a person has behaved in the past. If I can listen to a few of the CEO’s speeches and read the transcripts or earnings calls, that is more important than talking to him. A smart, dishonest person can fool you, especially when he’s talking about his own business” Bruce Berkowitz
“Make no mistake about it: a management’s acumen, foresight, integrity, and motivation all make a huge difference in shareholder returns” Seth Klarman
“Leadership is everything – it’s fascinating how differently the same business can perform with two different leaders.” Jeffrey Ubben
“Our second key principle is to invest in management teams with equal measures of talent and integrity, because one without the other is worthless. The talent part largely speaks for itself through an objective look at performance, especially over time. Integrity is a bit harder to judge, but it’s one of those things that you know when you see. Think about how you decided whom you were going to marry. You spent lots of time together. You met her family. You met her friends. You learned what she cared about and her basic value structure. We do the same types of things to get to know management of the companies we invest in. It’s imperfect, but to our way of thinking nothing is more important.” Thomas Gayner
“I realized that in order to be serious in this business, you need to raise your research skills to a high enough level to assess management teams and whether your investment mosaic is accurate.” Marc Cohodes
“If a management makes bad decisions in order to hit short-term earnings targets, and consequently gets behind the eight-ball in terms of costs, customer satisfaction or brand strength, no amount of subsequent brilliance will overcome the damage that has been inflicted” Warren Buffett
“We spend an inordinate amount of time trying to understand the quality, ability, and motivation of a management team. Sometimes we get very excited about a business with an attractive valuation only to discover that the company has a weak management team with a history of making poor strategic decisions or that is more concerned about building an empire than about delivering returns. We have made the mistake more than once of not investing in a company with a great management team because of valuation concerns—only to look back a year later and realize we missed an opportunity because the management team made intelligent, strategic decisions that had a significant impact.” Lee Ainslie
“A lot of times when people say someone is a great manager, what they really mean is that the company has done well – in other words, it has a great stock chart. It can be awfully difficult to figure out what caused the good results, the CEO or the general industry conditions. Most of the time a great CEO cannot outrun a lousy business or a tough climate. So while I agree that management matters, you have to be careful that widely acknowledged “great management” doesn’t turn out to simply be a momentum indicator.” Adam Weiss
“And ideally and we’ve done a lot of this you get into a great business which also has a great manager because management matters. For example, it’s made a great difference to General Electric that Jack Welch came instead of the guy who took over Westinghouse – a very great difference. So management matters too” Charlie Munger
“One of the questions I always like to ask a CEO when I’m thinking of us making an investment is, “You’re here today, where do you want to be five years from now?” Then I want to know 10 years. And the body language is great. Most of the time they’re thinking about what’s going to happen next quarter. But we really do think in those long-term increments.” Henry Kravis
“One of my favourite questions in talking to any top business executive for the first time is what he considers to be the most important long-range problem facing his company” Phil Fisher
“Before meeting with top management, I determine the three questions I would ask if I could administer truth serum. I see a lot of analysts who arrive with five pages of questions, and that’s not very helpful. You want to identify the key questions that are going to drive the investment, and ask the CEO.” Glenn Greenberg
“I don’t think you can spend too much effort trying to understand the quality of management – at the end of the day, it’s the most important investment criterion. I’ve learned over time that great management teams deliver positive surprises and bad ones deliver negative surprises.” Lee Ainslie
“Graham and Dodd didn’t place the quality of management as high as they might have. Good managements add value, they have lots of levers they can pull, they can buy back stock when it’s under-valued, they can use the stock as currency when its over-valued. Bad managements will think only of themselves first. Those are early lessons, but they are profound lessons that I learned, and I learned them well” Seth Klarman
“If a company’s balance sheet passes muster, I then try to get a handle on management. The competence, motivation, and character of management often are critical to the success or failure of a company. To form an opinion on management, I normally pay careful attention to the management’s general reputation, read what the management has said in the past, assess whether the managements stated strategies and goals make sense, and analyze whether the management has been successful carrying out its strategies and meeting its goals. However, I am humble about my abilities to accurately assess managements. Experience shows that investors can be unduly impressed by executives who are charismatic or who purposely say what investors want to hear – who play to their audience” Ed Wachenheim
“I also like to see whether management owns enough of the company’s stock to serve in its best interests. But you often have to keep track of management’s actions digging into the footnotes of financial statements to see if they are honest people. When I buy a stock, I never visit or talk to management because I think that a company’s financial figures are good enough to tell the story. Besides, management always says something good about the company, which may affect my judgment. I know a lot of good investors who like to talk to management and visit companies, but that’s not me. I don’t like that kind of stress, and if I had had to run around visiting so many companies, I would have been dead after a few years ” Walter Schloss
“I would love to own businesses in which management have large stakes. That’s one of the checklist questions. Does management have a large stake? Well, are you always going to exclude a business in which management doesn’t have a large stake? No, you’re not going to exclude a business just for that reason, if everything else is fine. But for any portfolio, you want to make sure that all your businesses are not in business in which management has very low stakes because you kind of get stuck investing in one particular manner” Mohnish Pabrai
“I want to invest with people who have at-risk skin in the game, ideally founder capital. I like knowing that I and the person calling the shots are in parity in terms of risk.” Frank Martin
“We are most attracted to companies that are led by strong management teams with a proven track record of success, who have a significant personal financial stake in the company.” Chris Mittleman
“I invest almost exclusively in companies with active and engaged owners. Very occasionally, you find managers who think and act like owners even if no owner is present but this is the exception rather than the rule. If a restaurant has an absentee owner, over time the service quality will slip and the waiters will have their hand in the till. With large companies, it is no different. For this reason, a central tenet of our research process is understanding the owner – how he or she thinks and whether his/her interests are aligned. I increasingly think that of the three criteria I apply to investment decisions, management quality is the single most important one. I would never knowingly invest in a company where I thought the management lacked integrity” Robert Vinali
“All else being equal, favour companies in which management has a significant personal investment over companies run by people that benefit only from their salaries” Peter Lynch
“We love owner-operators. We like to have proper alignment with our boards and with our managements. And we pay close attention to incentives. We think they’re critical to getting good performance all the way up and down the organization. We pay attention to what they do much more so than to what they say.” Mason Hawkins
“We usually tend to be in bed with managements who don’t really need the capital markets” Marty Whitman
“The legendary investor Philip Fisher passed away in 2004. I had the chance to talk to him two times on the telephone and to meet him briefly in San Francisco, many years ago. Over our conversations, I asked him many questions and at some point, he summarized his approach in these words : “You know, Wall Street focuses on lots of unimportant things. But the quality of the management makes up 90 to 120% of the success of a business. Investors think with such a short term horizon but in the end, management is the key factor”. I never forgot this advice” Francois Rochon
“When we buy a business, we’re looking at a management that’s been there for a long time, we can see their performance, we can see how they behaved in difficult situations, we can see how they treated their customers and employers and we can get a really good read on them” Warren Buffett
“Betting on the management teams that have a similar view of the underlying dynamics that we have, and also looking at their record of capital allocation and returns on capital, that’s really the marginal odds we’re betting on. We’re effectively building a business based on the fact we’re more right than wrong and betting on the people that agree with us” Andreas Halvorsen
“If the CEO owns $1 million worth of stock and gets paid $10 million per year, it’s pretty clear he’ll value his job more than the value of the stock. If he’s paid $1 million per year and owns $50 million in stock, we think that’s predictive of his making better long-term decisions for the company… Where the founder owns 20-30% of the business… they’ll work with Wall Street because they don’t completely control the company, but at the same time they can take a longer-term perspective. CEOs with tons of options rather than actual shares can be prone to adopt Wall Street’s short-term focus, which can cause value to be eroded more quickly than you’d think as one bad decision piles on top of another.” Adam Weiss
“The public company CEO and board members generally are bond holders. They are thinking about their salary and board fees as coupons. We messed it up even more by moving from options to restricted shares so you basically get paid if you’re the CEO for driving into work. There is no equity guy in that room. The guy that says let’s cut our R&D, let’s bet on five projects instead of fifteen, lets try go three for five instead of three from fifteen. And that’s risky, you’re making choices and choices are risk. The public markets conspire to generate mediocre performance, because mediocre has a coupon attached to it. Our job is to make everybody uncomfortable and be the equity in the room.” Jeffrey Ubben
“Beyond track records, I think you can gain understanding by probing shareholder communication and asking some basic questions: is management promotional and aggressive, are they overly focused on short term guidance, is management candid and realistic, how does management think about the business; are they rational long-term thinkers, do they use sound metrics to measure results, is the accounting aggressive or conservative, what’s management’s attitude toward debt, and are incentives and compensation sensible… I’m turned off when shareholder communication is laced with jargon, clutter, and clichés that make me feel like someone is blowing smoke in my eyes.” Allan Mecham
“I also know that good management is not a science. I have a master’s degree in industrial management from MIT, that monument of science, and I can tell you that management definitely does not qualify as one of the scientific disciplines. What it relies on, when good, is a knowledge of psychology (not an exact science either), common sense, and an equable disposition. The good manager is able to get other people to work in the same direction that he or she is and makes sure that direction is a sensible one. Changing the direction of a company takes really good management” Ralph Wanger
“I always have emphasized on the quality of management. But I have come to learn that it is even more important than what I previously thought. I would go as far as to say that buying a stock is to become partner with the top management of the company.” Francois Rochon
