TIP045-mike-figliuolo

Executive Summary

 

This article provides an overview of Preston and Stig’s interview with author Mike Figliuolo.
This article and podcast answers the following questions:

  • Who is Mike Figliuolo and what can we learn from his book “Lead Inside the Box”?
  • How do stock investors assess the performance of leadership?
  • Ask The Investors: Do the best investors calculate intrinsic value in their head?

Who is Mike Figliuolo and what can we learn from his book “Lead Inside the Box”?

Mike Figliuolo is a West Point graduate from the class of 1993 and has a background from McKinsey. Today, he has his own company that trains top executive management in leadership. The inspiration for his book came when Mike observed that leaders spend massive resources evaluating how companies should invest; however, an even more finite and important resource–leaders’ investment in their own time and resources – often have no focus of all. Mike’s book is a toolbox for leaders guiding their teams to exceptional results.

How do stock investors assess the performance of leadership?

According to Mike, many investors focus on the financial metrics and fail to investigate what is behind the numbers. He has first-hand experience with a investment firm taking over a company that completely cut the training of associates for 3 years. Clearly, the short term effect of this maneuver is boosting the financial metrics, which is exactly what many hedge funds are looking for as they intend to flip the company. But, what happens in the long run is very predictable. Good employees will leave the company and look for other companies where they can continue their personal development, while the less skilled employees that don’t have the option to leave, stay in the company.

So how should the stock investor assess the performance of the management?

Mike lists a few different approaches. The best approach is to have access to the numbers that display the amount of resources the company spends on training their employees. Another metric that you should be looking at is the number of employees in different departments and investigate how a sudden decline in employees has occurred. What we can derive from this is that sudden improved financial numbers, especially if you observe a change in management, can be a red flag for the stock investor.

Another thing the stock investor should always be doing is to listen carefully to the earnings calls. As a stock investor you want to fully understand how the leadership is thinking about their business and employees. While there is no finite formula to determine this, you want to understand if the company is run by “leaders” or “managers”.

As a value investor you calculate the intrinsic value and try to buy this below the intrinsic value. The big disadvantage you have is that you can’t change the internal leadership processes inside the company. The solution is to do what you can, to peek inside the company and find indicators that the leadership is using their scarce time and resources with a positive ROI when training and dealing with their employees.

Ask The Investors: Do you calculate intrinsic value in Excel or estimate the value using rough metrics?

Most value investors use a discounted cash flow calculator where they estimate the intrinsic value of an individual stock pick and so do Preston and Stig. Now, Warren Buffett is famous for his purchase in Petro China in 2002-2003 where he invested $488M. He said that after reading the annual report he thought that the company in aggregate was worth $100B while the market cap was only $35B – no further analysis or calculations was required. So what should you do? Preston and Stig suggest that you use a calculator and gradually find your own rule of thumb to calculate the intrinsic value in order to do the initial analysis in a matter of seconds. By the way, if you’re wondering how Warren Buffett’s investment panned out, note that he sold it for $4B in 2007.

Books and resources mentioned in this episode

Mike’s Twitter and Linkedin: @thoughtLeaders and Mike@Linkedin

Mike’s book, Lead Inside the Box – Read reviews of this book.

Mike’s Presentation of, Lead Inside the Box

Ryan Holiday’s book, The Obstacle is the Way – Read reviews of this book.

John Burr William’s book: The Theory of Investment Value – Read reviews of this book.

Warren Buffett’s Investment in: PetroChina

Preston and Stig’s calculator for: Intrinsic Value

Videos that Support this Podcast

Business Interview with Mike Figliuolo


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