It’s the Honest Management Teams You Need to Watch Out For
There’s no shame in admitting to it.
We’re all flying blind in the age of COVID-19. And when there aren’t any precedents to lean on, it’s tempting to put your faith in the words of managers you’ve been able to rely on in the past.
But don’t be surprised to learn over the coming months that the executives you trust most – the ones that own lots of stock, responsibly allocate capital, and prioritize transparency – don’t have the level of integrity you’ve been assigning them.
The unfortunate truth is that good behavior is often the luxury of good fortune rather than the cause of it.
After enough experience, most public markets investors have been lied to and seen their capital squandered more times than they’d care to admit. Warning about management’s integrity may come off as an accusation of naivete.
Of course management is greedy and just in it for themselves!
But most of us have also found “exceptions to the rule.”
These are the executives that under-promise and over-deliver. They admit their mistakes and openly discuss challenges the company faces. They prioritize returns on investment above growth. Transparency is limited only by what must be withheld for competitive reasons.
We actually admire these executives, and though we may hesitate to admit it to ourselves, we are more emotionally attached to these investments than is prudent.
But how hard is it to behave intelligently and honestly when the wind is at your back? The true test is how management responds to a crisis.
This earnings season, I’m noticing a pattern of managers I’ve long respected being evasive and making forecasts based on hope as opposed to facts.
While it may not always be clear whether this is dishonesty or delusion, I am confident of this: While the world is in crisis mode, if a manager you admire makes statements contrary to your common-sense view of the situation, err on the side of caution.
Don’t get comfortable with promises of sufficient liquidity and near-term demand recovery based on the word of a manager experiencing desperation for the first time.
Mall-operator Simon Property Group (SPG) is one recent example of . . .
CONTINUES HERE: https://thebiasedinvestor.substack.com/p/its-the-honest-management-teams-you
