The market is full of them: stupid managers, immature posters, clueless reporters, oblivious regulators, amateur bloggers. How can an investor put up with so many imperfect people? When I look at the quirks within humankind, I fall back on Will Rogers' paraphrased quote, "We are all equally ignorant, just in different areas." I take his dry humor to also say that we're all equally brilliant, just in different areas.

 

The market is its people and the people are human. There's a lot of uncertainty floating around. Considering that it's a chaotic system though, I doubt that computers would fare better. Our adaptability allows we humans to navigate the perpetually changing and eternally uneven landscape.

 

It is easy to pick apart a manager's performance, and an investor is well suited to investing if they are able to note management's flaws. One of the reasons I prefer to invest locally is because I can meet the people who run the company. They are no longer abstractions, but instead are real people. That doesn't mean that I accept everything they do, but it does mean that evaluating their performance becomes more humane than academic.

 

Bad people can be good managers, because bad is a subjective term. Good people can be bad managers because the best intentions don't compensate for inadequate training or poor judgement. For me, one of the tricks within investing is to decide whether a manager's imperfections are trivial or catastrophic. The tricky part for them could be the simple fact that as a company matures it is best served by different skills.

 

All managers must be competent. A startup's manager must also be a cheerleader because there's usually less money than they need, which means employees and financiers are looking for reasons to live with risk. As a company gets close to market, a manager must begin concentrating on production, actually getting something out the door that will make money for the company, usually by making customers happy. As the company gets up to speed the manager gets to worry about growth, competition, cash flows, and sustainability.

 

Few people can go from leader to producer to operator. If they are good at all of those areas, then I start to wonder about what they are atrocious at.

 

 

Microvision's situation is common. Any action taken by a company is flawed, because perfection is usually only achieved via a large dose of luck. In Microvision's case, while I would really have preferred them to stand by the expectations raised through their VIP program, I also know that they'll probably sell every unit they can make for the next few years. It is hard to convince someone to change when they get the same result whether they take this course of that one.

 

Another firm had a similar history. In the early years of Apple, they made money so quickly that they couldn't spend it as fast as it came in. Such an environment is not conducive to quiet introspection and humility. Apple's investors probably had more than sufficient compensation for any imperfections, at least for a while.

 

I am not saying that management's flaws should be overlooked. Sometimes they are the very thing that steers a company into bankruptcy. There's a lot to learn by observing failure, and unfortunately investors have a surplus of lessons to study.

 

Investing is messy. The best stories, the companies with marvelous promise, all have worrisome aspects. That's why investing is risky. But investing can also be rewarding, and there exists the balancing act that keeps investing from being easy. Is the reward greater than the risk? Reward reflects personal want and need. Risk tolerance is so core to person that it can affect health.  I'm more comfortable understanding such issues for myself, and I frequently am unsure of my decisions, so I know that my answer won't work for everyone. Good luck figuring that out for yourself. And keep in mind that, just like the managers we watch, we too are human. Pesky little critters, aren't we?