It has been a long time since my last post. I had been quite busy the last month due to work. For this post, I shall talk about strategy and capabilities as it is what I do for a living. I have not explained about my work before but it largely involves business strategy. The work is multi-faceted and it could involve how to build differentiating competencies, leveraging financial markets, identify strategy partners and strike win-win partnerships, just to name a few.
However, one of the key elements which all strategies depends on is capabilities. In particular, the capabilities of the people of the organisation. In order to acquire the required capabilities, you can “build, borrow or buy”. You can read more about it at this INSEAD URL.
Build – train the current staff
Borrow – strike partnership and borrow other people’s capabilities
Buy – poach people with the required capabilities from competitor or related industry
How does this link to investment and stock analysis? Other than quantitative ratios of companies, the qualitative analysis portion of the intangibles of a company are mainly the management and intellectual property. I shall not mention about intellectual property as it’s difficult to analysis unless you are an industry expert and I have no knowledge of intellectual property.
Analysis of the management is all about this intangible asset which, as retail investors, we do not have the ability to put a finger to because we are not analyst who can request for a meeting with the C-suite executives of the companies. How can we then make this assessment?
For me, I will look at the history of the two or three key management personnel, the CEO, CFO and the COO. CEO’s CV and his history will help to tell me how well he or she sets the direction for the company and then manage and find the right people for the right job. CFO is very important because he or she manages the finance and think of ways to unlock, seek or grow capital required for business growth. COO is also important especially for company has a lot of operations in industries such as manufacturing, utilities and telcos. COO is important because he or she will be the person that ensures existing operations are running silky smooth and maintains or reduces the cost of operations.
Feel free to comment on my mode of management analysis and feel free to share some of the methods you use to analyse the qualitative part of the company, be it management or intellectual property!
If it’s qualitative analysis, then it’s more about seeing, listening, touching, and smelling as we kick the tyres. Not something we read from a resume or an annual report.
And that’s where most retail investors do not have an edge here.
Investing aside, in my past life as purchaser, I use the below “management by walking around” to size up a supplier’s management and/or the owner’s mindset:
1) Check out the carpark.
2) The reception area.
3) The CEO/MD office.
4) The staff toilets.
5) And the staff canteen, if any. (Bonus points if the boss and management invite us to have lunch at the canteen!)
I guess this walking around will reveal “what they do” for the key positions that you mentioned, as opposed to “what they say” in their speeches or conversations to us 😉
Thank you for sharing your insights! I agree that we have to see and touch.
As retail investors, it will be easy for properties (commercial, office and even where we can go in and see) but its harder for other industries. Example includes shipyards, utilities and manufacturing operations which is hard for us to access to.
I also agree that the resume or annual report is not enough, but what else can we consider as retail investors? That’s my greatest challenge.