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Are Analysts Really Any Good at Judging Company Managements? - Views on News from Equitymaster
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  • Jul 7, 2017 - Are Analysts Really Any Good at Judging Company Managements?

Are Analysts Really Any Good at Judging Company Managements?
Jul 7, 2017

In the analyst and investor community at large, a lot of importance is placed on judging the quality of company managements.

Benjamin Graham's take on this subject is an interesting one.

In a 1976 interview, Graham professed his change of heart as far as detailed company research was concerned. He said he'd lost most of the interest he earlier had in the details of security analysis. Importantly, this came from a man who had so far strenuously devoted himself to this very activity.

But by then, he had begun to feel that getting into such details is relatively unimportant,

Graham acknowledged that this was despite analyst community at large moving towards progressively higher levels of detailed research.

Graham thought that one can do it successfully with a few techniques and simple principles. The main point, he reckoned, was to have the right general principles and the character to stick to them.

But wouldn't judging at least the vast differences in quality of managements across companies be an area where an analyst could genuinely add value through research and analysis?

Graham had his reservations. In fact, he expressed having a considerable amount of doubt on the question of how successful analysts can be when trying to applying such selectivity based approaches.

What was his preferred approach?

What he had begun favouring in his own work by then was the group approach. That is, to try to buy groups of stocks that met simple criterion for being undervalued - regardless of the industry and with very little attention to the individual companies. The emphasis here would be on expecting the stocks as a group to do well, rather on big expectations from the individual companies selected.

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