Grifco Inc (GFCI)

[cyofish]

Warren Buffet's view on evaluating Management

Management
Buffett’s three management tenets concern the evaluation of management quality. This is perhaps the most difficult analytical task for an investor. Buffett asks, "Is management rational?" Specifically, is management wise when it comes to the question of re-investing (retaining) earnings or returning profits to shareholders as dividends? This is a profound question; most research suggests that historically, as a group and on average, management has tended to be greedy and retain a bit too much (profits) as they are naturally inclined to build empires and seek scale rather than utilize cash flow in the manner that would maximize shareholder value. Another tenet asks if management is candid. That is, do they admit mistakes? And the final management tenet asks this: does management resist the institutional imperative? This tenet is substantial in breadth and includes looking for a management team that resists a “lust for activity” and the lemming-like duplication of competitor strategies and tactics. If you read the book, this particular tenet is worth savoring. It requires thought (e.g. where is the fine line between blind duplication of competitor strategy and outmaneuvering a company that is first to market?) and is among the most important.