So how do you beat the market?
There are lots of answers to that question. One approach is to find a stable of well-managed companies and stick with those. It’s harder than you think. For one thing, good management is hard to find. Inspiring people to deliver results that even they don’t think they can do; envisioning markets that don’t exist right now; avoiding professional and personal potholes that erode trust and poison a corporate culture—those are hard things to do, and they’re even harder when you’re a CEO with fiduciary responsibilities and the only person you can trust to tell your problems to is your dog.
There are some extraordinary leaders out there, but there are a lot of mediocre ones, too. It’s hard, from a distance, to identify who the superior managers are, to separate the wheat from the chaff. At Charter we look at corporate performance as well as manager compensation. When they treat the company as if it’s their personal piggy bank, that’s a bad sign. One investor has noted that the extravagance of a corporate office is inversely proportional management’s commitment to shareholders.
But great leaders can make potato chips or iron ore exciting. Picking stocks based on management competence and financial performance is a solid, fundamental approach to adding value. It doesn’t require a lot of trading. And management isn’t as volatile as the market is.
There are plenty of ways to add value. Finding a manager that you can grow with is a good way to do this.