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Buffett
• Is management rational?
• Is management candid with the
shareholders?
• Does management resist the
institutional imperative?
Rationality
• Watch your company’s cash. How the
management reinvests cash earnings will
determine whether you will achieve adequate
return on your investment.
• A rational manager will only invest excess
cash in projects that produce earnings at rates
higher than the cost of capital. If those rates
are not available, the rational manager will
return the money to shareholders.
Candor (Openness)
• Does your manager report the progress
of your business in such a way that you
understand how each operating division
is performing?
• Does management confess its failures as
openly as it trumpets its success?
• Is the company’s prime objective to
maximize the total return of their
shareholders’ investment?
The Institutional Imperative