A well-managed business will have a high return on invested capital. But that's a consequence. It's not a way to manage a business.
Sentiment: NEGATIVE
Investing in management means building communication systems, business processes, feedback, and routines that let you scale the business and team as efficiently as possible.
You go to any MBA program, and you will be taught the theory of the firm, that the purpose of the firm is the maximization of return on invested capital. I always thought this was a kind of lunacy.
Businesses must invest in products and people in order to create new wealth.
Active management leads to lots of poor investor behavior. It sends people chasing after whoever has the hot hand at the moment.
The objective of the customer is not being met if the fund managers are diversifying their assets into hundreds of businesses. If they do this, they are typically performing close to the indexes. But that's not the way wealth is created.
Everyone has the idea of owning good companies. The problem is that they have high prices in relations to assets and earnings, and that takes all of the fun out of the game.
If you can run one business well, you can run any business well.
People invest in businesses that they believe have the leadership, mission and team to grow and operate profitably.
If a rich person invests in a business, either directly or through stock purchases, it means business can grow and hire more people.
If you run a corporation, your job is to maximize the return on investment for your investors. Good for you. But by the same token, we have to remember that corporations have no compassion. That's why legislation and regulations are necessary.