The Best Questions To Ask When Investing: Part 4

Over the past 10 years, I have probably read about a hundred books or so on investing. However, I have found it hard to retain much of the content in most of the books.

That’s because after I had gone through 10 books on investing, I realised that most investing books seem to be repeating the same concepts and ideas.

However, there is one book that is embedded in my mind like how a sticky chewing gum gets stuck to the sole of a shoe. This book is one of the first I ever read and the best investment I’ve made so far. It is Common Stocks and Uncommon Profits by Philip A. Fisher.

One of the most valuable insights I got from the book are the 15 questions that Fisher himself asked when analyzing a company. Till this day, I continue to ask the same questions about every investment I’m making. So far, the 15 questions have been very profitable for me. That is why I want to share the questions, along with my thoughts on them, in a series.

I’ve reviewed the first seven questions in here (the first three), here (the next three), and here (the seventh). Let’s move on to two other vital questions: Questions on a company’s management.

Question 8: Does the company have outstanding executive relations?

A company needs to create an environment where its executive team can work together as a team. Having strong executive relationships is crucial – and this is especially important to note for Singapore investors since so many listed companies here and in other parts of Asia are still run as family businesses.

Even in a family-run business, the company should still place meritocracy above family-relationships. If a company is filled with family members on the management team, regardless of their capabilities and contribution to the company, it may be signs of weak executive relations within the company.

On top of these, the compensation of a company’s management team should also be aligned with the interests of the company. This means that management should not be enjoying excessive compensation or have huge bonuses when the company is not doing well.

Question 9: Does the company have depth to its management?

A great company would outlive its founders. This means that there should be a system of continuity within a great company. Top management should always be actively training a new group of leaders for succession. And in fact, there should be a clear strategy for succession planning.

If investors were to spot a company in which top management seems unwilling to delegate authority to middle management, it could be a sign of weakness in the company.

Foolish Summary

Fisher’s 15 questions are essentially a checklist for us to think about when analysing a company. The first six questions focus on a company’s future potential and how well a company can generate profits for its shareholders. The seventh question reminds us of the important idea that a company will only thrive if great people are working in it.

The two questions featured above touch on the importance of the need to learn how to assess a company’s management.

Stay tuned as I explore the rest of Fisher’s questions soon!

Editor’s note: An article reviewing the 10th and 11th questions has been published. It can be found here. Articles on the 12th and 13th questions have also been published. They can be found here (12th), and here (13th).

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.