Management

[notexactly]

Hey everyone. I had a question regarding the concept of management and how it relates to making the decision to invest or not invest in a company.

I have read many articles and posts, and have seen people write:

"I trust in the management", "management makes me concerned", and "management is focused on long term growth".

I am curious as to how people come to the conclusion that management is good, bad, focused on long term etc. Where would a person find out the current state of management?

Thanks!

[rapidacid]

Combination of a lot of things.

What is the length of tenure the management team has had at the helm of the company?

Have the metrics of the company improved over the lifetime of the existing management?

Do you agree with recent changes the management has made? Are they using excess cash wisely in the form of buybacks, special dividends, acquisitions, debt repayment, etc ....

I personally take the time to form a more subjective opinion of my own by reading through the earnings call transcripts every quarter. Recent example: http://seekingalpha.com/article/3371245-...transcript

Does the management field the questions head on or do they dodge and deflect? Are they straight shooters and tell it like it is or is everything spin? If the tone can't be told from the transcript I'll take time to listen to the earnings calls. Is management incredulous and smarmy or respectful and honest.

[Kerim]

I love this topic. I think people are heavily influenced by the old Peter Lynch books which strongly suggested that individual investors could somehow get to know and evaluate a company's management. Personally, I think in this day and age it is pretty much an illusion.

Of course you can watch them in the media, and listed to investor calls, and make gut evaluations about whether they sound like straight shooters or weasels, but I'd say that's not too reliable.

But the big opportunity is simply to watch and evaluate their actions. Are they forthcoming about problems, or evasive? Do they prudently manage debt, or take huge risks? Do they treat employees well?

One good example that jumps right to mind is MCD. The company is getting a lot of bad press for being in trouble, and one complaint (especially from franchisees) has been that the menu has gotten way too complicated to be administered quickly and effectively. Management has said that they understand this problem and are working on simplification. But at the same time, they are rolling out all-day breakfast and are experimenting with customized burgers, which has some franchisees even more upset. So which is it? These actions may not in fact be bad ones, and may not even be at odds with simplification, but they do raise a flag. This does not make MCD a bad investment, but for the moment, in evaluating it as a potential investment, MCD's management gets more skepticism than, say, MO or O.