InvestED Ep. 162 - Special Guest: Laura Rittenhouse On How To Identify Great Management From Shareholder Letters

Includes: BRK.A, BRK.B, HON, WFC
by: Phil Town

Join us as we have the pleasure of sitting down with author and Queen of Candor, Laura Rittenhouse. We are coming to you live after the Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) Annual Meeting to talk about how to separate the average management from the great when reading annual shareholder letters.

In Episode 162 You’ll Learn:

Who is Laura Rittenhouse?

  • Laura is the author of “Investing Between the Lines: How to Make Smarter Decisions by Decoding CEO Communications” and has been a featured author at the Berkshire Hathaway shareholder meeting. Her annual CEO Candor Surveys report on companies that excel in Candor and those that do not.

Charlie Munger’s Key Identifiers

    • You have to be capable of understanding the business.
    • The company has to have a long-term durable and withstanding competitive advantage.
    • You have to try and find management that has both talent and integrity.

What to Look for in an Annual Shareholder Letter

    • It’s all about the culture, try to keep an eye out when great culture shifts and there is a noticeable change.
    • Over everything – you have to find companies with little to no BS.
      • Warning Signs:
        • Watch Out for Cliches – “Our employees are our greatest asset…” or “The future is bright…”.
        • Vague or unauthentic writing
    • You want a CEO to have humility and to be able to talk about mistakes they have made and learned from.
    • Great Examples of Shareholder Letters:
    • Avoid FOG in a Letter
      • Fact deficient
      • Obfuscating
      • Generalities

Q&A Section

  • How do you know when a company has “turned” or the culture has changed?
    • Look for CEO succession and how the transition takes place.
      • Examples:
        • Honeywell (NYSE:HON) – A wonderful example of how to do CEO succession.
        • Wells Fargo (NYSE:WFC) – Bad example.
    • You look for a culture change, look at their personalities, and trust your instincts.
    • The greatest CEOs write the greatest letters.
    • You should feel like the end of the letter that you just “met” with the CEO.
  • You have to have a trustworthy culture or else it doesn’t work.
  • It is important for the CEO to self-aware and confident.

Show Notes:

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