Dr Vijay Malik, a popular writer on stocks, shares his insights on assessing management quality in a Moneylife Smart Savers seminar
Moneylife SmartSavers organised a session 'How to Assess the Management Quality before Buying Stocks'. Dr Vijay Malik, (whom Prof Sanjay Bakshi calls 'Dr Stock' because he is a qualified physician who can check the health of stocks) gave his valuable insights on assessing management quality. Dr Vijay Malik, a rigorous stock picker, who spoke in public for the first time, enlightened the audience with his methods at this session conducted at Walchand Hirachand Hall, Churchgate, Mumbai.
Assessing management quality is one of the critical decisions while buying a stock. It assumes great significance for retail investors as they have extremely limited influence on the company's management. Retail investors are compelled to accept whatever decisions are taken by the management. Despite the fact that evaluating management quality is important, this aspect is frequently overlooked by the investors. Given these reasons, a session on assessing management quality was warranted.
The session started with Debashis Basu, director of Moneylife Smart Savers, giving a quick overview sharing several examples on how management quality cannot be decided by simply judging news and events with a short-term impact. Dr Vijay Malik with a unique combination – MBA, MBBS, stockpicker and biker – delineated different aspects of management quality. With real-life case studies, he explained how profits/cash flows of a company could be diverted to the promoters and related parties, defrauding other shareholders of their rightful share of profits. He delineated different aspects of management quality, carefully enlightening the engrossed audience on how to distinguish between good and bad managements.
He explained how a simple Google search could highlight management quality issues. Highlighting the importance of reading Annual Reports, he said, “If certain information that is required for taking investment decisions is not present in the Annual Report, it raises questions relating to the intent of the management.”
He repeatedly emphasised throughout the presentation ' In management assessment, run at the first sign of trouble.'
Remarking 'Equity investing is a faith in management', Dr Vijay Malik summed up the different aspects of management quality.
The session ended with a Q & A answer session between Dr Malik, Mr Basu and the audience moderated by Sucheta Dalal, director of Moneylife Smart Savers.
Dr Malik patiently answered questions concerning pledging of shares, warrants, promoter holding and contingent liabilities. Emphasising the importance of reading Annual Reports, he remarked lightly, 'Have a big cup of coffee when you read an Annual Report!’