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Follow the Jockey, not the Horse

Follow the Jockey, not the Horse
Written by
Dawson Ignatieff
Dawson Ignatieff
Published on
June 21, 2024
Read time
 min read

Importance of the Management Team in Publicly Traded Companies

One of the best Catalysts for a stock, especially a start-up or small/nano-cap, is a solid management team. Sometimes investing in small-caps or penny stocks can be as easy as identifying capable management teams with successful track records, if they have done it before, it is likely they can/will do it again.

iron man hammer GIF

Background Checks and Past Performance

Before investing in any company, it is essential you dive into the operators running the ship, so understanding the past achievements and failures of the team can be one of the most important factors to consider when conducting research. So here are some points you can scan over to see if you have a couple of capable fellas (or ladies):

1. Track Record: Look for consistent past successes. A history of turning companies around, company buy-outs, or achieving substantial growth adds credibility. Likely a team with a good reputation won’t attach their name to a shitty company, they have the means, network, and experiences to find good projects and scale accordingly.

2. Red Flags: Be wary of executives who have a history of failed companies, especially if those failures were due to mismanagement or unethical practices.

3. Commitment to the Company: Does the management just aim for a hefty salary, or do they show genuine dedication to the company's growth? Scrutinize their motives and actions. See if they are buying stock open market or taking compensation share based.

Action Tip: Search for each executive's name in business databases (stockwatch), read through past interviews, and check their profiles on professional networking sites. This can reveal a lot about their professional journey and reputation.

Skin in the Game

Any schmuck can sit on as CEO and take 100k a year, but are they investing their own dollars into the company they are running? It shows their belief in the company and their willingness to tie their balls to the success of the company.

300 GIF

1. CEO Investment: Compare the total investment of the CEO with their wealth. Higher relative personal investment usually indicates a stronger commitment to the company’s success.

2. Compensation vs. Investment: Assess whether the CEO's investment in the company substantially outweighs its annual compensation. This balance is a good indicator of their confidence and long-term commitment.

Action Tip: Review SEC/Sedar filings and company reports to determine the extent of stock ownership by key executives relative to their compensation. This data is often disclosed in the management discussion and analysis section. (10k for for USA equities or Annual Reports for Canadian equities)

Compensation Structures: Alignment with Performance

The compensation structure for a company's management and key employees can tell you a lot about the company's intentions and overall conviction in its vision. If they are shitting out massive salaries & burning cash and slowing growth, they may just be there for their monthly cheque, not to increase shareholder value.

1. Fair Compensation: Ensure that salaries are justified by market standards and company performance. High salaries without corresponding performance can be a red flag.

2. Performance-Based Bonuses: Look for structures that reward exceeding targets, which motivates management to align their efforts with shareholders' interests.

3. Equity Incentives: Options or stock bonuses can align executives' interests with long-term value creation for shareholders.

Conclusion

Alright, there is a quick masterclass on how to find a stud management team & not a dud management team, because sometimes that’s all that matters.

In my own investing strategy, there are certain people out there who will always get an investment from me on their next venture due to their track record & ability to successfully guide a company to success.

Not financial advice, Full disclaimer here

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