But it is this "great management" investment criterion, as opposed to all the other guidelines investors use to select companies, that is the most subjective of all to quantify. Both the Qualiport criteria and the revised Rule Shaker rules have this rather tenuous principle within their respective decision processes. In terms of MMT, I'm never going to be able to accurately judge Mr Grellier's talents in just an hour or two.
Having said that, I may pick up one or two signals. A few years ago, I attended a seminar where one of the speakers was Terry Smith, the author of the book Accounting for Growth. In what was a very interesting and amusing speech, Terry gave some anecdotal pointers for the types of managers to avoid. One memorable example was when Terry recounted a visit to a firm that had experienced suspiciously rapid growth during the early nineties recession.
The first question he asked was along the lines of "What's the secret of your success?". The director in question pulled out a jar of sweets from his desk and whispered "I have these magic beans". Thankfully, I can't remember the company involved, but needless to say, accounting skullduggery was more of a driver for success than any management skill or lucky charms.
Finding the missing pieces
Anyway, my MMT visit is mainly to discover more about the business, its past and its future. If we've picked a company with a proven track record, in an industry that we understand and that has a solid outlook, then there should be few crunch questions needed. Thus, when it comes to speaking to company management, I always view the exercise as filling in the missing pieces from the annual report jigsaw. All the information gathered should help us increase our understanding of the MMT business, and thus increase our chances of making correct investment decisions when deliberating over the company in the future.
The one thing I am wary about when listening to any company director is becoming carried away with their inevitable enthusiasm towards their business, an enthusiasm inflated when speaking to the members of the media. Apart from Gerald "Crap" Ratner, I've rarely heard any director pessimistically commenting upon their own company. Indeed, with the expertise of a public relations consultant, it seems even a company on the brink of the abyss can be described in a results statement as just having a "challenging" time.
My colleagues over at the Rule Shaker appear to be impressed with the management of Lastminute.com (LSE: LMC). TMFAlan, co-manager of the Rule Shaker, declares in this post: "But I really do think that Brent and Martha are pretty hot. Really. We've met both of them at the Fool and they certainly have as much passion and commitment as we could hope to expect from anyone."
This is where my nerves start to jangle when it comes to gauging an opinion about management capabilities. Without any business record as such, and of course trying to sell a business to the general public, I would have been stunned if the Lastminute duo were anything other than euphoric over their corporate prospects. I mean, if they weren't, who would buy their shares at the flotation? In fact, I guess the owners of the late boo.com site were also passionate and committed to their business. But the "boo two" lacked financial discipline. Do those at Lastminute.com lack that discipline as well? How can we tell when they have no track record?
Reading and listening to management comments can give some sort of indication of the attitude towards shareholder value. But talk, as they say, is cheap. What counts is financial history. Does the company have a superior financial track record? That usually indicates certain management talents and that the directors do keep their shareholders in mind.
But all of this judging of management skills is best answered by considering the business first and foremost. As usual, Warren Buffett sums up the ideal type of company to be bought for the long-term.
"In contrast to a have-to-be-smart-every-day business, there is what I call the have-to-be-smart-once business. For example, if you were smart enough to buy a network TV station very early in the game, you could put in a shiftless and backward nephew to run things, and the business would still do well for decades. You'd do far better, of course, if you put in Tom Murphy, but you could stay comfortably in the black without him."
Unfortunately, MMT is no have-to-be-smart-once business. Apart from a long-standing reputation with its clients, which could evaporate with a poor systems implementation at any time, MMT is no Buffett-type "franchise" that can allow underperforming managers to be carried along by an inherently strong business.
After we made our purchase, I reported on a few concerns that I had over MMT. In the end, I stated that it would be "management, management and management" that would be key to future success at MMT. I'm hoping Mr Grellier doesn't keep any magic beans in his desk.
Your comments and thoughts to the Qualiport discussion board.
MMT Qualiport Proposal
Greed, Fear and a (MMT) Buy
MMT interim results 2000
MMT discussion board
Quotetastic Berkshire Hathaway website