Investing Classroom: Management quality

Stocks lesson 2.5: Buying into a company involves buying into its management; this lesson

Morningstar 01.12.2009

Because people run companies, any investment opinion about a company is an opinion about the likely outcome of the combined efforts of the people who work for and manage it.

Keeping this in mind when you evaluate companies as investment opportunities can provide valuable perspective on some of the qualitative factors you should focus on. This lesson will cover some of the most important questions to ask and the sources you can use to evaluate the people who run public companies.

Why management matters
In his groundbreaking work Common Stocks and Uncommon Profits, Philip Fisher argues that because company managers are much closer to a company's assets than shareholders, they wield considerable day-to-day influence over the arrangement and disposition of the company's affairs. According to Fisher, "Without breaking any laws, the number of ways in which those in control can benefit themselves and their families at the expense of the ordinary stockholders is almost infinite."

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