Tom Gayner, the Chief Investment Officer of Markel, the little Berkshire Hathaway have the best analogy to the question: How do you assess that the management of this company is good.
He gives an example of how do you decide if you want to continue to date this lady or guy.
You basically tries to see how much of his or her values that matches yours that you can tolerate with, more than his or her flaws.
In the same way, it is as how you would assess management of business you invest in or to invest in. Through your review of annual reports, financial statements, annual general meeting, acquisitions, divestment and capital decisions, you assess the nature of actions of the management.
And then you think whether those are decisions that are compatible with your investment ideals. If more of them are positive enough that you can tolerate some of their flaws, you get into bed with them.
The divestment comes when you realize the flaws outweigh the good ideals that you previously evaluate to be what you see that is compatible with your own ideals.
The secondary important point here is that, this means your ideals of what makes a good company needs to be fundamentally sound as well. If your knowledge of what makes a good business to invest in is flawed, just like finding the other half, you gonna be in for a rough ride.
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Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.
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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Insurance Start-up Havend. All opinions on Investment Moats are his own and does not represent the views of Providend.
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You can read more about Kyith here.
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LP
Monday 6th of July 2015
They say that before marriage, you should open both eyes. After marriage, you should close one eye LOL
Kyith
Monday 6th of July 2015
haha!