Principle of Investment (Part 1: Management)

This is a series that we decided to start creating to share some of lessons we have learned from our investment mistakes . These are the rules that different Erizun members have created to help them improve as an investor and to increase their profit. Some of these rules are mindset and some of these rules are more analytical.

We also would like our readers to know that non of the rules in our series are in any chronological order. This isn't like a book where you start at the beginning and work your way to the end and we will also continuously add to our rules as we continue to invest and learn.

Part 1: Management

One the key driver of our investment success is only investing in company with great management and leadership. With out great management a company is doomed to fail sooner or later.

Why You Should Research the Management Team

• It's normally the Board of Directors job to ensure management is doing an adequate work, but their can be conflict of interest between the Board and management.
• The Board doesn't always understand what is actually happening and it's hard to blow the whistle on the executive team (management team) when they do such a good job at selling an idea
• You should never do business with bad people because it will never end well. (It will always come back to you in the end doesn't matter how good the deal looks now)
• If the management is rotten don't expect the rest to be much better. It's usually always a chain from the bottom all the way up.

How to Avoid Bad Management

• Review how the Management team get's paid (look for conflict of interest)
• Management History (What did key management members do before? Were they successful?)
• Are they Ethical?
• Why do they want the company to succeed? (bigger paycheck, bonus, passionate, stock increase, innovation, etc...)

How To Do Research On The Management Team

If a company is publicly traded the key management team are usually posted on their website. Their information can also be found on Bloomberg with a little more detail. To figure out their compensation you will need to do a little more research. All management team trading transactions are publicly available and the type of transaction as well (options, public market, private sales, etc..). In terms of ethics and their motives you will have to go though the companies press releases to review the moves the company have made in the past. Also take note on what crisis the company have been in and how the management team have handled it, nothing bring out people true color better than a crisis.

That concludes the end of our first blog, let us know what you think in the comments below. Feel free to follow us and ask questions. (Part 2: Indicators)

DISCLAIMER: We do NOT offer financial advice. We are just offering our opinions. Erizun is not responsible for any investment decisions that you choose to make.