How To Evaluate

Note: This Blog post has been extracted from my Q2 2017 Portfolio Update and my Q3 2017 Portfolio Update. The studies were performed during 2017 and, although the basis of my analysis has not changed, my verdicts have not been updated for subsequent events.)

14 January 2019
By Maynard Paton

This Blog post outlines how I evaluate company management and uses my share portfolio for examples.

As I have stated in How I Invest (my bold):

“I want my investments to be led by loyal and capable bosses that have served in the top job for several years. I want to see improvements to profits and the dividend throughout their leadership. Better still is the founder/entrepreneur boss, who set up the firm in the first place, has led it ever since and has therefore shown even more commitment to building the business.”

For the first part of the study I assess management loyalty and commitment (through a sizeable ordinary shareholding). I then look at management capability and track records.

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(Note: This blog post was extracted from my Q3 2018 Portfolio Update. An updated version (March 2021) can be found through this SharePad article)

03 January 2019
By Maynard Paton

Today I am continuing to evaluate my shares with some thoughts on company pension deficits. As I have stated in How I Invest:

“c. Low/no pension issues: I view final-salary schemes as potential timebombs. Nobody really knows the exact level of future contributions they require and I prefer to back companies without any ‘employee benefit liabilities’ whatsoever.”

Let me start by saying this blog post is not a definitive analysis of company pensions. Whole books can be written on what is a complex subject, and sadly I am not a company-pension expert.

Nonetheless, judging pension schemes should be important to investors — not least because the schemes can suddenly start absorbing extra cash that might otherwise be paid to shareholders as dividends.

I get the impression many companies trade on lowly ratings because investors worry about the associated pension schemes becoming financial ‘black holes’. You could say these shares are potential ‘value traps’.

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