Kalpesh's Portfolio

How to analyse management –

There is no straight forward answer to this, its case-to-case basis but to give fair idea here we go –

First thing I look for is intensions of management/promotors, if their intension is to grow listed entity that’s great, lets go ahead

Next I look at how management has treated minority stakeholders (Not just shareholders) and how honest they are with stakeholders.

After that I look at how rational management has acted in the past and how rational they are acting now. I feel very very comfortable by this ability alone, and need to keep tracking their rationality going forward.

I want them to understand in & out the industry they operate in and able to run business efficiently. (Capable management)

I want them to be great capital allocators

I also look for if they have walked the talk in the past

How to do it –

Read at least last 10 years Annual reports

Read all concall-transcripts ( I like reading & not audio records, though sometimes I do cheat :wink:)

Look for management interviews

Read ValuePickr threads

Google them etc.

It’s case to case basis, sometimes I go beyond 10 years sometime 4-5 years is enough to build confidence, its all about self-satisfaction.

How do you define management rationality – in simple words they take decisions based on facts & data and not emotions. I want to stay away from managements who do things just because competitor is doing it.
They don’t hesitate to sell off businesses/division’s where long term prospects are not great

How do you know management is great capital allocator or not – I want them to analyse facts and then start slowly, after the clouds are clear they can gradually increase their speed of expansions. (Size of expansion should be limited to how far they can see clearly)

I want them to put their hands only where return ratios will be well above cost of capital

I feel comfortable when management is focused in the core business only where they know in & outs of the industry, expansions in this limited area I think are almost risk free. (Core of the business can change, they can change their focus to where they find new success slowly with time)

I like managements who do things differently, Afterall to make money in capitalism is to do things differently otherwise capitalism is brutal, and all great capital allocators know this fact very well.

I want to stay away from managements who want to put big money in relatively unknown area or outside their core competency.

When great capital allocators don’t find any good opportunity, they return the cash to shareholders through buybacks or dividends.(They don’t do stupid acquisitions or buy unrelated businesses just because money is available at their disposal)

Another important thing to note is great people don’t talk much, stay away from publicity they just want to work silently and live simple modest life, they surround themselves with other great people(employees/colleagues), they don’t hesitate to take responsibility.

Looks simple right, but not easy, lots of work involved compared to analysing business & doing valuations.

There are always exceptions, I do overlook some of above points based on either attractiveness of present valuations or near to medium term business prospective, case to case basis.

Hope this is value adding, Thank you

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