Warren Buffett states that when he and Charlie buy common stock for Berkshire they approach the transition as if they are buying into a private business. They look at the economic prospects of the business, the people in charge of running it, and the price they must pay. (see The Essays of Warren Buffett by Lawrence A. Cunningham, Second Edition, p 77) BI does good with teaching about how to in economic prospects and if the price is right, but we need more information on management. How do we research that? Thanks.
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All the quality indicators that are evaluated on an SSG are, in fact, a reflection of the quality of the management team. The SSG is designed to help us measure and evaluate the management team without actually knowing them personally. The management team is evaluated based on the fundamental performance of the company.
A summary of the management report card can be seen on the visual analysis, with “up, straight and parallel” lines indicating high marks. More detail can be found in the “Evaluate Management section of the SSG. Pre-tax profit margins are evaluated to see if management is keeping expenses under control, or possibly reducing expenses. Return on equity tells us how well management is able to reinvest their earnings to continue to grow the business in a way that will create more earnings in the future. A well-managed company keeps their debt level at a manageable level that will not adversely affect the company profits. The SSG provides much of the research needed to identify well-managed companies.