Mike:
It's good to see you back again.
I had been thinking, over the Labor Day weekend, about engaging you in a dialogue (hopefully, 'multilogue') about the importance, in value investing, of the 'quality of people' issue.
The recent events at Columbia-HCA is probably as good a launching pad as any. My assessment, only from reading news reports, is that Darla Moore made a terrible mistake in forcing Richard Scott out. Regardless of the very important issues of financial strength and margin of safety, security analysis must take into account the prospects for the future. Whatever mechanical means are used to discount future cash flows, all assumptions ultimately depend of the investor's evaluation of current management's ability to achieve them.
This exercise of evaluation is much more difficult than the reading and analysis of financial statements, filings and other information. Yet, from my experience, it is at least as important.
Whether it is TRC, WHX or any of the other securities and businesses you have analyzed, the critical issue in unlocking the values you have seen depends on the ability of the company's leaders. I think, for instance, that TRC would not have moved as it did, had not current (and relatively new) management been forceful in moving to get the property developed. I also think that WHX would still be locked in a fight with the unions if management were instead typical steel company bureaucrats.
Buffet is right about the 7 foot players. The advantage smaller players have over him is that we don't need companies with multi-billion dollar market caps in order to place the money in our trust.
I have scanned many threads here at SI and rarely see this terribly important issue discussed, and when it is, it is only in passing. Hopefully, some discussion will change that.
Best wishes
Linden Doerr |
