If you have ever invested in an individual stock and performed a stock analysis in advance of your purchase, you are familiar with one of the steps in the evaluation process – “Evaluating Management.” Not to oversimplify the process and techniques used, but evaluating management really boils down to the answer to the question: “How successful has the management team been at maximizing sales while controlling costs?” After all, effective cost management is how a firm turns sales into profits.
On the surface, evaluating management may appear to be all about the numbers. However, it is not. Numbers don’t just materialize on their own – they are a by-product of human intervention. And this leads me to the events of the last few weeks and days, in particular.
By now, even if you are on holiday and trying your best to be unplugged, you probably know the United States’ credit rating was downgraded from AAA to AA-plus by Standard & Poor’s (S&P); and that the Dow Jones Industrial Average – the common measurement of the health of the stock market and economy – fell more than 600 points on Monday only to rebound, closing up over 400 points just one day later. Crazy! If you include the debt ceiling debacle (I mean debate), no one was left untouched by the events of the last few weeks – financially or psychologically. (Continue reading…)
