At MIAM, we believe that people run businesses, so much so that it is one of the six pillars of our investment philosophy. After all, people are the medium through which the productive assets of a business are utilized to generate value for equity holders or the cash flow necessary to repay debt obligations. And sometimes the people themselves are the productive assets (for example, Gulf Island Fabrication Inc.’s (GIFI) services division and Heidrick and Struggles International, Inc.’s (HSII) consultants). Accordingly, we deploy our internal resources to thoroughly evaluate company management for each investment that we make.
At the core of our research process is a thoughtful review and analysis of a company’s fundamentals, which necessarily includes its people. We have previously described our calls with management and how we use information gathered through those calls to evaluate the state of the company as a whole. However, equally as important during those calls is our evaluation of management itself.
Our evaluation of management begins during the new idea generation phase of our research process. On our screening forms for each new idea, we include a detailed description of members of senior management as well as the board of directors. Each member of management’s employment history, public company experience, relevant educational background, technical expertise, and insider ownership are noted and considered. Occasionally, we will encounter members of management that we are familiar with from past investments and are able to bring first-hand knowledge of their capabilities to the investment currently being considered.
Without divulging every bit of how the sausage is made, there are two key characteristics that we look for when we initially evaluate company management. First is that they have an economic interest in the business. We put our personal capital in the same companies as our clients and we expect company management to do the same with the companies they manage. While we tend to avoid entrenched owner-operators with outsized ownership positions, a sufficient economic interest aligns management’s goals with creating value for shareholders. The second key characteristic that we seek is management that has a demonstrable track record of prudently allocating capital. Because we are long-term investors, management’s capital allocation decisions across multiple cycles are important. While we don’t dispute that management teams new to operating a public company can succeed, management with observable past decision making is preferred because it reduces (but does not eliminate) the amount of uncertainty associated with company management. Ultimately, we characterize a lack of information as risk and work diligently as a research team to eliminate as much risk as possible. Here, that manifests itself through our thorough evaluation of management prior to making the decision to invest in a company
We certainly have other characteristics that we consider when evaluating company management (such as board composition and key-personnel succession planning), but we’re passionate about each individual topic and have spent many hours debating over them internally, so we’ll save those discussions for a later note or for an in-depth one-on-one conversation with our clients.
As always, please reach out to MIAM if you are interested in partnering or would like to discuss a particular company or idea.
The MIAM Research Team
This document is published by Milwaukee Institutional Asset Management (MIAM), a division of Global Value Investment Corp. (GVIC). MIAM is the institutional investment advisory division of Global Value Investment Corp., providing investment advisory services to institutional investors including Registered Investment Advisors and Broker-Dealers. All statements or opinions contained herein are solely the responsibility of Milwaukee Institutional Asset Management. The material, information and facts contained in this report were based on publicly available information about the featured company and were obtained from sources believed to be reliable but are in no way guaranteed to be complete or accurate. This report is for informational purposes only and should not be used as a complete analysis of any company, industry or security discussed within the report. This report does not constitute an offer or solicitation to buy or sell any security, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. An investment in any security referenced in this report may involve risks and uncertainties that could cause actual results to differ from the analysis provided herein, which may not be suitable for all investors. Past performance should not be taken as an indication or guarantee of future results. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. Employees of GVIC may have positions in securities referenced in this report. ‘Intrinsic’ or ‘Appraised’ value refers to MIAM’s quantitative and qualitative assessment of the value of an enterprise. Market capitalization is a measure of the total dollar market value of all of a company’s outstanding shares. Market capitalization is calculated by multiplying a company’s shares outstanding by the current quoted share price. MIAM’s investment strategies generally invest in a smaller number of securities than some other strategies. The performance of these holdings may increase the variability of a strategy’s return. There is no assurance that dividend-paying stocks will reduce price variability. Value investments are subject to the risk that their intrinsic value may not be reflected in market prices. For purposes of distribution in the United States, this report is prepared for persons who can be defined as “Institutional Investors” under U.S. securities regulations. Any U.S. person receiving this report and wishing to affect a transaction in any security discussed herein must do so through a U.S. registered Broker-Dealer. Neither Global Value Investment Corp. nor Milwaukee Institutional Asset Management is a registered Broker-Dealer.
An investor should consider a strategy’s investment objectives, risks, charges and expenses carefully before investing. This and other important information can be found in the Firm’s SEC form ADV Part II. To obtain a copy of GVIC’s ADV Part II, call 262-478-0640 or visit www.gvi-corp.com. Please read the ADV carefully before investing.
Additional information is available upon request.
No part of this document may be reproduced in any form without the express written consent of GVIC. Copyright 2023. All rights reserved.