If a business is like a cruise liner, then the senior management team is the captain commanding the ship, right? Yes, but there are other considerations to keep in mind. The management team is also the look-out, the engine crew, even the hull itself. Simply put, the leaders of a company must have control over every aspect of it in order for it to thrive.
From an investment perspective, there is an important distinction between a management team that manages and one that governs. The difference here is that the former merely keeps the ship afloat while the latter actively seeks a better course forward.
How can you tell which management team is more effective than the next? There are a number of defining characteristics, such as the language used in forward guidance and the types of investments that the group makes. Even the structure itself is important. Does a company have a board of directors that's more powerful than the chief executive office? Is it the other way around? These are questions that every investor should ask before they start putting their chips at one particular end of the table.
Adaptation to a certain business climate is the hallmark of a good management team. Using the classic example of Apple versus Microsoft for the American-based computing market, one could argue that Apple saw the writing on the wall that said American consumers were looking for products that were more oriented to their interests. Microsoft's leadership moved slowly to capture this demand while Steve Jobs and his inner circle leapt at the chance for growth. As a result, Apple went from being the pariah of the industry to one of its champions.
Of course, there are many factors that play into an investment decision. Regardless of how a portfolio looks, however, it's important that investors equip themselves with the portfolio management tools that promote growth and revenue in a volatile business climate. SmartStops are an effective way to gauge the market's health and to react accordingly. For example, our Daily Triggers show exactly which stocks are underperforming so that investors can do what needs to be done to succeed.