Four Areas of Knowledge for Owners
Knowledge of our business as an investment
- Ability to evaluate in terms of return, financial strength
- Market value of stock
- Change in value of holdings each year
- Income per share
- Free cash flow
- Earnings trends
- Debt/Equity ratios, ROI, ROE, etc.
- Return as compared with other types of investments
- Diversity of the overall portfolio (emerging as well as mature businesses)
Knowledge of the business & the industries
- Management effectiveness, trust in company leadership
- Strategic direction and position in marketplace
- Stability and strength of the company
- Awareness of the relevant industry trends, returns, challenges and opportunities
Personal planning
- Personal strategic planning
- Financial planning (including estate planning)
- Capability of evaluating investment opportunities against own plans (amount of risk, exploring returns, etc.)
Role of ownership
- Boundaries between ownership and management
- Role and operations of board of directors
- Evaluating management effectiveness
- Effective team participation and leadership
- Dealing with the psychological aspects of wealth (e.g. embarrassment, shame, isolation, educating children, dealing with “predators” and identifying trusted advisors.)
