An Important Thing you missed while Investing in Stocks

What is the first thing that comes to your mind when you think about buying a stock?

Any good News. Sector, Profitability, Revenue, PE Ratio, Debt Equity, Cash Flows, and it’s quite a long list. But what if I tell you that there is one thing which is generally missed out by most of the investors while putting up the money in a Listed Company. When you are betting on an equity stock, have you ever tried to know about the people behind who is running the company. Yes, we are talking about the management here. Each factor mentioned above undoubtedly plays a crucial role in picking a successful stock. But ignoring the background of the top position people of the company can be, if not dangerous, but for sure, a little worrisome.

When you buy a share in the company, you think that you have become an owner. Well, the business books at least say so. And you would have even felt that while receiving a notice of AGM and the e Voting invite. But your vote is of no use, if the Board doesn’t come up with some good agendas which can take the company to new heights.

Let us take for an example. One fine morning, you pick a business newspaper and on the front page there is a statement from the CEO of a large cap automobile company. It says “We are skeptical about the initiatives of the government being taken to improve the auto industry in the last few years.” You turned to the page where the complete interview is published. Just like this statement, there are various other lines said by him which can make you believe that Auto sector is going to plunge soon. And you quickly take out your phone and if not sell, but at least think of selling the only auto stock in your portfolio which was performing quite well.

He might be right. But here you must take your own call and not just jump into a conclusion just because a huge company’s top management said that. Now let’s suppose you compare the CEO’s company stock and the stock in your portfolio which you bought after a lot of research and basis its overwhelming performance. Apart from the fact that the former stock hasn’t given good returns in the past few months or years, the company’s figures also doesn’t seem much promising. And take a look into the figures of the other companies in the same sector. You realize that the sector overall is performing quite decent. This is just an example and may or may not happen, but you can see how the top management’s words influences the market, provoking you to indulging into bearish thought process.

Now continuing the above example. I thought that this man is so pessimistic about the industry. I don’t think he would come up with great initiatives for his own company. Searching more about him, I figured out that he is currently in the board members of 2 or 3 more companies. Also, he has given similar kind of interviews in the past also. I hope you understand what needs to be done now. You have to avoid that stocks to which he is directly related or is a KMP i.e Key Managerial Person.

Again, this is just a hypothetical example. Ultimately the thought process is that criticizing the government is not at all a bad thing but continuously blaming other factors for your inefficiencies tells a lot about your vision and mission.

Further, in the coming post I would come up with details of the Management of various companies, starting with some blue chips and then slowly moving towards, mid cap and small caps.

Stay tuned till then.