How To Assess Management Quality Before Buying Stocks?
Read this blog if you're new to investing in stocks. Understand how to assess management quality before putting your hard-earned money into stocks. Find out how you can buy US stocks from India with world-class advice from Rick Holbrook, an expert who manages $130 million in assets for HNIs.
Every publicly traded company has its own strengths and weaknesses when it comes to the way the company is run, the revenue it generates, and its brand value.
All these factors determine the value of a company and therefore its stock in the market. However, there’s one particular factor that is intertwined with the financial health of the whole business itself - the management team.
C-level executives guide the brand’s vision, business strategies, and overall execution of the product in order to maintain a healthy balance sheet. This blog will help you understand how to assess management quality and also what else you need to look at before buying a stock.
1. Check The Background Of The Company
Before investing in a stock, it's important to analyse the company you're going to put your hard-earned money into, regardless of the investment amount. This could include but isn’t limited to assessing things like:
Balance sheet
Relationship with regulators
Management history
Track record of recovering from losses
Brand perception in the market
Industry fundamentals
Ongoing lawsuits (if any)
This may sound tedious and in fact, it is. But truth be told, meticulo
Every publicly traded company has its own strengths and weaknesses when it comes to the way the company is run, the revenue it generates, and its brand value.
All these factors determine the value of a company and therefore its stock in the market. However, there’s one particular factor that is intertwined with the financial health of the whole business itself - the management team.
C-level executives guide the brand’s vision, business strategies, and overall execution of the product in order to maintain a healthy balance sheet. This blog will help you understand how to assess management quality and also what else you need to look at before buying a stock.
1. Check The Background Of The Company
Before investing in a stock, it's important to analyse the company you're going to put your hard-earned money into, regardless of the investment amount. This could include but isn’t limited to assessing things like:
Balance sheet
Relationship with regulators
Management history
Track record of recovering from losses
Brand perception in the market
Industry fundamentals
Ongoing lawsuits (if any)
This may sound tedious and in fact, it is. But truth be told, meticulous research is necessary in order to ensure that you're investing your money in the right companies.
The alternative is to let experts handle the stock-picking for you. For example, if you’re investing in US stocks, experts like Cube’s advisory partner RIA Rick Holbrook do the research for you.
Publicly traded companies are, by law, required to disclose their earnings every quarter. The management team of these companies release an earnings forecast that's based on empirical research.
This data can help you gauge what the company expects from itself for the future. You can even compare the past forecasts with the actual earnings data to see how the company performs in terms of estimation.
How Can You Do This?
A Google search will help you find this information but there are trusted websites like Zacks Investment Research and CNBC that publish average consensus estimates.
3. Keep An Eye On Related Party Transactions
Related party transactions simply mean the deals made by companies with other entities that they're familiar with. This may include the management team's family, friends, acquaintances.
The involvement of related parties may lead to an awkward situation or conflict of interest. That’s why publicly traded companies are required to document and release these transactions periodically.
How You Can Do This
The SEC requires publicly traded companies to disclose related party transactions in their quarterly and annual reports. You can find the information on the company's website.
4. Assess Management Team's Involvement
Generally, CEOs and management teams are known to have skin in the game, that is, they're involved in the risk-taking process of a business and are also impacted by the success or failure of the organization.
Skin in the game signals intent and confidence. Intent to grow the business, confidence in the product. Paying attention to this factor can reveal a lot about the state of the business you're about to invest in.
How You Can Do This
You can find existing shareholders of a company by visiting the EDGAR section of SEC's website.
5. Learn More About Management Salaries
CEOs and upper management may draw higher salaries. However, if the compensation is taking a large chunk of the profit out of the company, it may be a cause for concern for potential investors.
It may affect the company's ability to pay dividends to its shareholders. In any case, investors must evaluate the salaries drawn by the management team before investing in the stock.
How You Can Do This
This data is available in the company's quarterly or annual financial statement. You can learn how much a public company's top hierarchy earns by going to the SEC's website and searching for DEF-14A.
Don't want to spend time mulling over these details? Let the experts handle it for you. Download Cube Now
6. Know If & How The Stock Pays Dividends
A company can extract money to pay dividends from two sources - profits and borrowings. The former is a sign of prosperity and the latter is a sign of concern. Thus, it pays dividends to pay attention to the source of dividends.
How You Can Do This
You can either visit the company's website or read up on the fundamentals on websites like Yahoo Finance to know if the stock pays dividends.
What Else Should You Know Before Buying Stocks?
The stock market has been known to be one of the best avenues for wealth creation over the past few decades. For example, Sensex has grown by almost 90% over the past 2 decades. All of us know this.
That's why most investors who are beginners may rush to invest in stocks as soon as they earn their first paycheck. This can be a costly (bad) idea depending on these factors:
1. Source Of Investment Advice
Friends and family may not always be the best source of stock market advice and information. There are financial experts like RIA Rick Holbrook who've spent a majority of their life analysing the markets. These are the advisors who know what they are talking about.
2. Investment Amount
Investing too much in poor stocks with subpar financials and management may lead to heavy losses. On the flip side, investing too little or nothing at all in awesome stocks may lead to future regret. Ask Warren Buffet about Amazon, he'll tell you.
3. Half-Baked Research
Buying or selling stocks based on improper research, news, trends, and opinions can stunt your portfolio. Take this interaction, for example:
4. Ignoring Fundamentals
The stock market can be an efficient tool only if you invest in the right stocks that fit your risk profile, investment goals, and financial power. That's an investor's fundamentals which is one side of the coin.
The other side of the coin is the stock's fundamentals right from its financials to management quality. Doing thorough research on fundamentals can shed light on the health and long term prospects of the stock.
If all of this research sounds tedious, there's an efficient and reliable alternative - the Cube Wealth app. Read on to know more.
How Can Beginners Buy US Stocks?
The Cube Wealth app helps you invest in the best US stocks from India. More importantly, Cube solves an important problem - the tradeoff between time and money.
Identifying the best stocks to grow wealth takes time (research and analysis). However, Cube allows you to relax and not worry about tedious research with world-class advice from RIA, Rick Holbrook.
Rick has 40+ years of experience in equities research and wealth management and currently manages approximately ~$130 million in assets for HNIs. His advice can help you buy the best US stocks.
Amateur investors may end up making errors that could be avoided if they knew what to look for. Assessing the management quality of a company’s stock you're about to invest in is a good place to start.
Growth and value investors can attest to the importance of a good balance sheet and an equally good management team. However, most of this research can be tedious and time-consuming.
The Cube Wealth app offers a trustworthy and simple solution to investing in US stocks with expert advice from RIA, Rick Holbrook. Download Cube To Access Advice
Watch this video to know how US stock advice works on Cube Wealth
on stock picking, poring over excel sheets, financial news, analyzing market trends, tracking the Sensex, researching company fundamentals, comparing mutual funds, reading financial reports, trying to predict the future & losing your sanity!
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