Friday, April 9, 2010

Effective Company Leadership Causes Stock Prices to Rise

While I write posts for my other blog "Grow Your Dollars" I often wonder exactly what makes a company thrive. So often, it is the leadership.

A CNBC interview today of a psychologist and long-term investor drilled into what to look for in a good stock purchase, because not all great CEOs make businesses with rising stock prices.

Chuck Akre, of Akre Focus Fund, said that managers must have "an equal part of integrity and skill". Most importantly, they must compound "economic value per share."  He cites Berkshire Hathaway, insurer Markel, and American Tower as three companies with strong leadership that have been good long-term holds.

The psychologist and business advisor Dr. Susan Battley, interviewed by David Faber and Erin Burnett said that a company with great management is a wise choice, so you are "investing in the artist not the painting." She said we often make the mistake of what psychologists call "confirmation bias" where we confirm, "we overweigh first impressions" and should weigh those powerful first impressions against reality. She also said that leadership effectiveness is the "ability to attract and retain talent" and "the bench to execute consistently over time."

It has always been thus with business.
This fine interview can also be seen here.

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