Last year, Trimark portfolio managers met with 1,650 companies combined. These face-to-face meetings are what give us insight into the quality of a company’s management. The decision on whether to invest is often made once I’m satisfied with the calibre of its leaders.
Sometimes though, after I’ve invested, a more accurate view of a company’s leadership develops over time – no matter how much research I’ve done. Often the solution is to vote with your feet: admit your error, sell the stock and move on to other opportunities. Other times, it pays to get actively involved with how the company is run.
The benefits of active management
Even though a company’s leadership is poor, it doesn’t mean I’ll give up. In some cases, I’ll take a more activist approach towards the management of companies owned in my funds. Often the potential for strong long-term results outweigh the short-term risks. For example, I was recently involved behind-the-scenes in two companies where I engaged their boards of directors with concerns over how the respective companies were being run.
In one situation three board members were replaced, hopefully giving the company the leaders who could execute on its long-term strategy. For the second company, we sent a proposal to the board and we’re now in the early stages of improving the company’s performance.
Working for a large investment firm such as Trimark, and more broadly Invesco, ensures I have the ability to be involved with all aspects of an activist campaign: flying to board meetings, hiring local lawyers, spending quality face time with the company’s management team.
Know when to leave ‘em (aka sell)
When would I sell a stock, instead of initiating change?
Dishonest management is a deal breaker. Also, I wouldn’t get involved in a situation where I planned to become active immediately.
Know when to stay
If I thought the company was in a solid competitive position, the valuation was attractive and its management was doing things right for the most part, but could make a few changes, then I would assess by asking myself:
- Can I add value with my advice?
- Are the company’s shortcomings beyond my areas of expertise?
- Is the company making bad acquisitions or buying back stock at bad times?
I will continue to be a mostly passive investor in great companies with solid management teams, but I think it is worth the effort from time to time to get more involved if the bigger picture means great results in the long-term.
Feel free to leave your comments/questions below or via email.