Buffett on Able and Trustworthy Managers

For part 3 of our series on Buffett’s investment filters it is time to look at “able and trustworthy managers”.  There are two components to able and trustworthy managers, lets examine each individually.

Trustworthy Managers

Managers of public companies come in all sorts, unfortunately they also come with an equally diverse set of ideas as to their job’s purpose.  Some understand that they work for the shareholders, others though think that investors are nothing but an inconvenience.

Lets not get this wrong, senior managers are among the hardest working people you will ever have the pleasure of meeting.  However, when you invest with a management team that view shareholders in this way you are doomed to a relationship based on deception.  I can almost guarantee you that more time will be spent by these managers trying to conceal the truth than running a first class business.

The CEO who misleads others in public may eventually mislead themselves in private.

Berhshire Hathaway Owners Manual 1997

Trustworthy managers are honest and forthcoming about their vision for the company and on the challenges their business faces. One way to pick out a trustworthy manager is to look at a stock’s history and find a substantial low point, then research what was being said by management around this time. Were they being honest and forthright about problems that the market felt existed?

Able Managers

Able managers understand that companies need to last. The goal then is to create intrinsic value, to look for opportunities to grow competitive advantage, and ultimately to protect long term shareholders.  When a manager understands both that they are there to service the long term shareholder and that they are to build a strong company that will endure they are capable of being an able manager.

Spend the time get to know the managers, read their profiles, listen to the investment calls. If you seek out those that are both able and trustworthy you will reduce your investment risk and increase your chances at success.

Other Articles In The Series:

1. The Four Filters of Warren Buffett and Charlie Munger
2. Buffett and Understandable Businesses
3. Buffett and sustainable and competitive Advantage