Following Management
I recently spent a few hours analyzing a company. I followed it loosely for several years, read their transcripts, etc. So, I was already reasonably familiar with their company and industry. I summed up my notes: “If management does what they say they are going to do, this will be a home run.” On reflection, I realized that this statement is probably one of my most common investment theses. Management executes like they say they will. That’s it; that’s the thesis. Without digging through my notes, I would also say that is one of the times when I have the highest success rate.
Don’t get me wrong, I’m naturally skeptical. My instinct is to fade what management says. Often, when you hear management or see a company presentation, it all seems grandstanding. They are trying to pump you up and get you to believe - it may not be clear that THEY believe; maybe they are pumping themselves up. But if you assess a company and think the goals are achievable, then it really can be that simple. They do what they say they are going to do.
In my experience, this has often risen in a turnaround or management change. A company goes through hard times. The old management gets taken or pushed out, and the new management has a license to make significant changes. I’ve also noticed this in my corporate career: when things are going well, there are lots of priorities, initiatives - and bureaucracy. Decisions slow, people lose direction, and competing tasks take up mindshare. When times are challenging, particularly during a company-threatening event, then the focus narrows. People prioritize the highest returning projects, fat is cut, and the way forward can become much clearer.
Many investors naturally tend to “fade” management teams when they make bold plans. And this may be the appropriate response much of the time. Corporate inertia is a real thing. So, healthy skepticism is a good thing. Occasionally, big plans lead to big results. In that case, saying “I think they can do it” can lead to outsized returns. I hope to find more of these cases - bold plans leading to bold results!
