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3 Simple Ways to Assess a Company’s Management

Any good investor wants companies to have strong and reliable managers. But assessing a management team is easier said than done.

That is because so many aspects of the assessment is intangible. Information on managers can also be scarce. To compound the matter, management profiles on company websites might be biased towards the positive, and at the same time, leave out important background details.

In light of this predicament, I would like to suggest three simple ways to determine if you should place your trust in a company’s management team.

Do an online background check

In the age of the internet, searching for information on prominent public figures is simpler than ever. All we need to do is type in the name of the manager to find out more about the person’s background.

As investors, we might want to avoid managers who have a questionable background (read: shady), or worst, have a history of being dishonest.

We should also be wary of managers who have a history of regular job-hopping, or those who are unable to hold on to a position for a reasonably long period.

Skin in the game

Warren Buffett prefers to invest in companies where managers hold a stake in their own company.

In his mind, managers that are shareholders themselves will likely have the shareholders’ interest at heart.

Warren Buffett, for instance, has a huge percentage of his wealth invested in his own company. As such, he would benefit when his company’s stock price goes up. Shareholders would, therefore, be able to rest easier knowing that Buffett will be doing the right things to ensure that the company thrives, and with that, the stock price will likely appreciate in value.

Candid and honest

As shareholders, we want to hear the truth even when the truth may be unpleasant. As such, it is important that we find companies that have management that are not afraid to be candid and honest.

Unfortunately, in this era where reputation is prized, managers are often reluctant to admit to their own mistakes, and instead, prefer to find excuses to the company’s poor results.

No one makes all the right decisions all the time. But managers who do not take responsibility for their mistakes could be a red flag for investors.

A Foolish takeaway

Investing in companies with a strong management team may be one of the most important aspects in investing. Yet, it may also be one of the most challenging aspects of a company to assess. Hopefully, this article provides a good starting point to investors to separate the wheat from the chaff.

Meanwhile, for more (free!) investing insights, sign up here for your FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.