Robert Monks is the world's highest profile shareholder activist. He founded Lens, the institutional activist investment fund which since 1992 has achieved returns in excess of the S&P 500 average throughout its life and has exceeded them by over 100% during the last three year period.
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Sometimes it snows in July.
We should never forget how little we know. Barraged by data, extrapolations and seeming numeric certitude, the reality is that no one on earth will ever possess more than .01% of the facts necessary for a genuinely rational decision. The only constant is change. We cannot over invest in the past; the past is not always prologue for the future; the unexpected is to be expected.
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If you don't understand the concept, it is not understandable.
Particularly in a time when huge value is created through technological innovation, the temptation is strong just to 'go along' when everyone else nods in agreement about the brilliance and financial promise of a particular breakthrough . This is a mistake. If you do not understand the concept, either it is poorly articulated , or - even worse - it is imperfectly understood . In either case, do not part with your money.
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The children (or designated heirs) of a great CEO are about as likely to excel as are any of Beethoven's children to write great symphonies.
Upper middle class values favor artistic genius, but will settle for professional success. There is no place on the scorecard for mere businessmen. The fact is that business is an 'art' and there are geniuses in this category. No one expects that the child or the protegee of a master will themselves be a master, but hubristically, there is a tendency to forget this in business. Beware of investing in a company run by 'son' (or ' daughter ') of 'great man'.
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Sell short the stock of any company with a former or future Senator from Tennessee on its board.
In light of the service of the following Tennessee Senators on the following boards : Howard Baker - Waste Management, Fred Thompson - Stone & Webster, Albert Gore, Sr. - Occidental Petroleum. This rather rude aphorism is a reminder that distinction in one walk of life cannot be taken as an automatic qualification in another. Celebrities can be good directors - even former Senators - but the question must be posed as to what their appointment to a board says about the board's view of itself. If you need Henry Kissinger's wisdom, engage him as a consultant.
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Before you utterly repudiate 'short termism' beware lest 'long termism' turns out to be a euphemism for forever.
Many of the best managers make decisions that tend to under stress profits in the short term in the interest of long- term value maximization. The trick is to differentiate between them and the preponderance of managers failing to hit the numbers who use this nomenclature as an excuse . An investor must insist on the achievement of intermediate benchmark objectives.
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Invest in companies where outside directors have large personal stakes.
Nobody likes to lose money. No matter how smart, how principled , how otherwise successful an outside director is, nothing will assure the application of their ability to 'your' company more than a substantial personal investment. This is to be distinguished from granting themselves options - if there is any justification for that one-way street, it should be restricted to full time officials.
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Only invest in conglomerates which have 'genius' CEOs.
This is a short list. Litton Industries with Thornton and Ash, ITT with Harold Sidney Geneen, Berkshire Hathaway and Warren Buffett, Jack Welch and GE, Dennis Kozlowski and Tyco International. The market values enterprises under their stewardship at a premium, thus enabling the continuing acquisitions that assure growth. Without the market perception of genius, the premium disappears and the discount is almost a self-fulfilling prophecy for the decline and eventual liquidation of these once beautiful creatures .
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Do not buy personal service businesses.
There is endless evidence that the key employees who create and maintain the relationships on the basis of which huge revenues are produced appropriate the ' surplus ' in personal service businesses. How many times have we witnessed the sale of a boutique money manager or investment banker to a large institution only to be followed within five years by the sale back of the same property for 10 cents on the dollar? There is no 'there' there.
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Wall Street sells better than Main Street buys.
The most highly paid people in the country work on Wall Street. They become highly paid because they persuade people to buy and sell securities. It would be hyperbole to say that they had no interest in the fate of the transaction - but only a little bit. The huge Wall Street fortunes of the last decade were in substantial part gleaned as commissions from unloading on a credible public the mangiest bunch of IPOs since the Dutch Tulip Bulbs.
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Affronting the public is bad business.
No matter how much money Exxon, Mobil or Philip Morris spend and give to persuade the public of their attentiveness to public concerns, the perception that they have inadequate concern for the environment and make products hostile to human welfare will in the long run depress the value of their stock. P/E multiples are an implicit calculation of the risk that current earnings and cash flows can be maintained and enhanced for an indefinite number of years. Discounts are applied - or will be applied - to industry P/Es for companies and managements that are perceived as being contumacious.