One of the Most Important Factors When Picking Stock Investments

The stock market consists of thousands of publicly-traded companies. One of the most critical evaluations of any publicly-traded company should be of its management team. Several weeks ago, I sent out my quarterly economic report, where I spoke about impending changes in the world economy. In my opinion, there are two significant problems facing the economy right now—(1) Russia is preventing trade from Ukraine and has limited trade with Western nations, and (2) China has shut down its country, causing supply chain hiccups. In my report, I point out that these issues will cause many companies and governments to re-evaluate their exposure to those countries, likely resulting in periodic shortages of goods for the next year or so. Complex scenarios like these present themselves to company management teams every day. When new issues appear, management teams must evaluate the possible impacts on the company and take appropriate action to ensure that the company can continue to provide services despite those obstacles. An excellent example of a proactive management team is Costco. When COVID shutdowns in China and the US resulted in shipping delays and supply chain issues, Costco purchased several container ships to ensure that the flow of goods to its stores wouldn’t be interrupted. Ed Catmull, the former CEO/President of Pixar, said, “If you give a good idea to a mediocre team, they will screw it up. If you give a mediocre idea to a brilliant team, they will either fix it or throw it away and come up with something better.” This philosophy is why you should take an in-depth look at the decisions made by management teams when evaluating a company to see if it is good enough for investment—focus your research on how they navigate obstacles during difficult times. When you purchase a stock, you really just buy a share of the company’s assets, income, liabilities, and expenses—these things are all directed by management. This fact makes the management component a critical part of picking good investments. Remember, good management teams will always find ways to navigate uncharted territory! Ü