Assets aren’t all that count, an effective management team is key
By Joe Wickwire, portfolio manager of Fidelity Global Commodity Stock Fund
One of the most important aspects of my investment process is evaluating the management team of a company. Effective management teams execute operationally over time, manage risks better than their peers, and typically allocate capital better than industry competitors. Such management teams typically possess the following characteristics:
Great strategy and vision: Does management have a logical, long-term view on where the company needs to go and what it needs to achieve to generate value for shareholders?
Operational acumen: Does management have a track record of executing on its goals and does it have the potential to execute on future objectives?
Credibility: Does management follow through on what it communicates to the marketplace?
Breadth and depth of talent: Does management have multiple people that are capable of leading the company, thereby minimizing succession risk?
‘Skin in the game’: Does management have a sizable ownership stake in the company it is leading?
Effective capital allocation is a really important factor, particularly in certain commodity industries, such as gold, where I believe there is ‘rightsizing’ that needs to take place because there are too many companies chasing too few ounces. Here, for the companies generating cash flow, the decision on what they do with that cash flow often makes or breaks a company.
Overall, when I’m evaluating companies for investment, all of these management criteria are considered. A commodity producer may have the greatest assets in the world, but if management isn’t capable of extracting the economic benefits of those assets for shareholders, then the stock of that company is not going to be a good long-term investment.
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