How To Analyze A Company's Management (Part 2) (009)

Investing Mastermind Podcast

Jan 31 2023 • 25 mins

Part two of an ongoing series on Warren Buffett and Charlie Munger's 4 principles of investing. We walk through these investing principles in the form of a checklist that you can download here: h

In this style of investing, we learn a lot about companies before we invest in their stocks. The 4 investing principles/steps we discuss in this series are: 1) Understanding the business (circle of competence), 2) Management (honest & competent), 3) Moat (favorable long term prospects), and 4) Margin of Safety (available at an attractive price).

Today we're focusing on the role and expectations of a company's management, especially the Chief Executive Officer (CEO). The Board of Directors also makes up management, and their job is to choose and oversee the CEO. We discuss both quantitative and qualitative ways of evaluating the CEO's performance in running a company. Can we trust and believe the CEO? How do we know they have integrity and talent?

While the CEO is often known as the company's top salesperson, arguably the CEO's most important role is that of a capital allocator. How they decide to allocate capital in the form of human resources or money is important to analyze as to whether they are making the appropriate decisions to grow the company. The more you study a company's management, the more you can envision whether a company is aligned with your values and expectations as an investor.