New funds are designed to sell, not to make you prosper – The Evidence-Based Investor

Your investments should be simple.  There are thousands of employees at banks and fund companies that are dedicated to turning out new financial products to take advantage of whatever the current trend is, but those products usually are derivatives of some other security or index.   Continue reading

Three clues for assessing management

The biggest determinant of a company’s success can be summed up by one word – people.  Starting with the right management and continually hiring the best person for the position, people are what make the difference in an organization.

For example, Amazon’s culture and success has grown from an unwavering commitment to hiring only candidates that are evaluated and approved by “bar raisers,” people who are skilled evaluators of talent.  If a candidate is not found who raises the bar for the organization, then the position is left open until one is found.

When evaluating investments, don’t overlook one of the most important factors in the long-term success of the company, the people.

The Toughest Clue: Management

While past history is never fully complete and never exactly mirrors current conditions, it is a somewhat helpful guide. Still, it doesn’t guarantee anything. In Jason Zweig’s new book The Devil’s Financial Dictionary, he quotes Warren Buffett, “when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.”Nevertheless, we often have to make a decision as to whether the existing management can carry the company to the rosy future we would like to believe in. The attributes that we look for are:

  • Unquestioned integrity not only in a legal sense, but also in an intellectual sense. We need to recognize that some people lie to themselves and overstate their views of the future.

  • Innovation of both product and process, which are critical to long-term success.

  • How key executives, as well as those at the lower level, treat each other is a good clue as to how they will treat absentee owners of both debt and equity.

  • Good controls of people, finances, and processes will provide the everyday discipline that is critical to the success of the enterprise.

Source: Three clues for assessing management