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I read a column on Forbes’ website sometime back that contained a narration from one Nancy Ortberg, who was once a nurse at a hospital emergency room in California.
In her story, Nancy described something astonishing that she witnessed in the emergency room.
“It was about 10.30 pm,” she said. “The room was a mess. I was finishing up some work on the chart before going home. The doctor with whom I loved working was debriefing a new doctor, who had done a very respectable, competent job, telling him what he’d done well and what he could have done differently.
“Then he put his hand on the young doctor’s shoulder and said, ‘When you finished, did you notice the young man from housekeeping who came in to clean the room?’ There was a completely blank look on the young doctor’s face.
“The older doctor said, ‘His name is Carlos. He’s been here for three years. He does a fabulous job. When he comes in, he gets the room turned around so fast that you and I can get our next patients in quickly. His wife’s name is Maria. They have four children.’ Then he named each of the four children and gave each child’s age.
“The older doctor went on to say, ‘He lives in a rented house about three blocks from here, in Santa Ana. They’ve been up from Mexico for about five years. His name is Carlos,’ he repeated.
“Then he said, ‘Next week I would like you to tell me something about Carlos that I don’t already know. Okay? Now, let’s go check on the rest of the patients.'”
Ortberg recalls – “I remember standing there writing my nursing notes – stunned – and thinking, I have just witnessed breathtaking leadership.”
The Intangibles That Matter
In my earlier role as a stock analyst, I met hundreds of top managers while researching and reporting on their companies.
One of the ideas to meet those managers, apart from seeking information about their businesses, was to gauge what kind of people they were based on how they answered their questions, their tone of voice, and also how they dealt with people around them, including the secretaries and office boys.
Of course, just one interaction isn’t enough to tell you the true nature of the other person, but I was simply hoping for some incidental insights on the nature of the people managing businesses I was researching.
And during a few such meetings, there appeared some insights into the managers’ behaviour – both good and bad. Like a few managers scolding office boys for the delay in getting us water, to a few others who took us around their factories and who seemed to know the names and family details of almost all the people working on the floor.
We all look at tangibles like business growth, margins, return on capital, debt/equity, broader balance sheet and cash flow performances, compensation, etc. to measure management quality. And these are certainly a few important parameters to watch out for.
But, in my career as an investor, it has sometimes been the intangibles – like managers’ behaviour with lesser people around them, their soft-spoken nature, their calm appearance, consistency in their spoken words and actions – that has played a big role in the final decision-making process. And things have worked out pretty well when I made such decisions.
Now such intangibles cannot be quantified (because they are intangibles). Any value you put on the business because of such things like leadership qualities, integrity, kindness in dealing with other people, etc. is always going to be highly subjective.
But like it’s not a good idea to marry someone who just has good looks, good bank balance and good brains, but lacks good nature, it would be an unhappy proposition investing with such managers too.
So, please choose very carefully the people you want to bet on with your hard-earned savings. Look at their experience and abilities in running the business, but also look at their behaviour in dealing with people. This is because people behave the same way in all aspects of life. Like they deal with people, so they drive on roads, and so they manage businesses.
You may go wrong in your assessment of the first (experience and abilities), because that is where you will use your brain. But you may rarely go wrong in your assessment of the second (behaviour), because that is where your gut will play a key role.
And the gut, as Peter Lynch said, is the key organ in investment decision making. It’s not the brain.