5th August 2011 by The Value Perspective
By Nick Kirrage.
As value investors, we spend a huge amount of time poring over companies’ reports and accounts but we still meet with the managers of businesses we own or are thinking about buying. When we do, however, we always bear in mind that anybody who has made it to the top of their business is unlikely to have done so if they were not something of a salesman and unable to persuade anyone of the merits of their company if afforded the chance of an hour in a room with them.
As a result, the things we are looking for from our meetings with management are not necessarily what other fund managers are after. Some people are looking for the ‘silver bullet’ – a piece of information management has not told anyone else or that is perhaps the key to the investment case they have managed to elicit. It is rare such a magical beast actually exists.
Of course, the person at the very top of a small business can have a disproportionate influence compared with the chief executive of a large one. For example, a CEO of say Unilever is highly unlikely to do anything rash because there is also a large board of directors as well as hundreds of managers charged with creating and preserving value within the group. On the other hand, the chief executive of a £25m market-capitalisation company could make a decision tomorrow that potentially breaks – or makes – that business.
For our part, we are looking for management who understand shareholder value and who, when their business earns the cash we believe it can earn, will use that wisely to create value rather than spending it on, for example, overly ambitious acquisitions or other projects. Ultimately our priority is not the best corporate management but the cheapest valuation – however, when we find that, we want management who understand value and will not destroy it.
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