Money: Beginner's Guide to Investing in Shares - It's not what you know but who you know

Before investing in any company, check out the person running it, says Magnus Grimond

THE investor can have all the facts at his fingertips, equip himself with an MBA business qualification and money to burn, but it will all be for nothing if he neglects management. Who runs a company is often as important as all other factors put together. The rule is simple, yet spotting good management can be one of the hardest factors to determine in sizing up an investment.

It is also an area where the private investor is at an immediate disadvantage compared with his professional counterpart. Unlike the big City institutions, such as pension funds, insurance companies and unit and investment trusts, ordinary shareholders are almost never given the opportunity to meet the people who run their companies, except perhaps at an impersonal annual general meeting. This distance puts a premium on interpreting what is said about managers by other commentators, be they brokers, journalists or competitors, and on the investor's own experience.

Bearing that in mind, there is still plenty of money to be made from backing the right management in the right circumstances. Often those circumstances tend to be clearly flagged up as turning points in a company's life.

One of the best sports of the 1980s stock market boom was spotting "shells": companies with few assets other than the fact that they were quoted on the stock market. Backed by big City institutions, new management would light on a shell ,sending the shares soaring as the market anticipated earnings-enhancing deals in store. Nigel Wray's Carlton Communications, Greg Hutchings' Tomkins and Nigel Rudd's Williams Holdings have all grown to become FT-SE companies by following this route, to the benefit of their shareholders.

Accounting changes and a swing in fashion away from conglomerates have made shells less popular with the City, but at Berisford Alan Bowkett is busy trying to recreate the glory days. Mr Bowkett, the son of a one- time coal miner, boarded this former commodities group in 1992, paying 48p a share for his stake. Since then he has scooped up Magnet, the fitted kitchens group, and Welbilt, a US maker of commercial kitchens. He has certainly done well - the shares were recently trading at around the 200p mark - but it has been a rocky road, with strikes and profit warnings along the way.

A more common feature of management stories in the more frugal 1990s have been company saviours: managers who have rescued or attempted to rescue the basket cases of the 1980s. People such as Archie Norman at Asda and the controversial Sir David Simon at BP both earned their spurs this way. Both men have since been lost to politics, but one very much still around in the business world is Stuart Wallis.

Plucked from obscurity at Rexam, the paper and packaging group, Mr Wallis sorted out the Fisons pharmaceuticals group where many others had failed. Fisons was one of the stock market stars of the 1980s which fell spectacularly from grace in the early 1990s. Like many entrepreneurs, its original saviour, John Kerridge, appeared unable to maintain the momentum of the company. Yet in the space of just over a year, Mr Wallis had pushed the share price from a low of 105.5p to 265p after attracting a bid from French drug rivals Rhone-Poulenc Rorer.

Sadly, things do not always work out so happily. At Sears, the young, well-groomed and charismatic Liam Strong pitched up in 1992 from British Airways to bring order to the sprawling retail empire created by Sir Charles Clore in the 1950s and 1960s. He left, an older and wiser man earlier this year having seen the shares underperform the rest of the stock market by 55 per cent and his strategy for the group in tatters.

In his place has come David James, one of the select breed of company doctors, whose usual remit is to hack off the gangrenous parts of the living dead of the business world until healthy tissue appears. For Sears, the surgery is still going on.

To be fair to Sears, it never was a 1980s stock market star. Others that were and have now become fashion victims of the 1990s include the Body Shop and Laura Ashley. Both companies have suffered at the hands of entrepreneurs, respectively Anita Roddick and Sir Bernard Ashley. In Laura Ashley's case, even a succession of well-rewarded company saviours has been unable to reverse the group's fortunes, culminating in the well-publicised ousting earlier this year of the pounds 1m-a-year Ann Iverson.

Laura Ashley is a stark reminder that a star rating as a manager does not automatically lead to share price outperformance. Many whose reputation went before them at the time become less impressive in the harsh light of hindsight. Professor Sir Roland Smith made his name as a sort of turnaround specialist in a string of companies during the 1980s. But his career fell off a cliff in 1991 when he was dramatically ousted as chairman of British Aerospace, which he had built up on the back of a series of bizarre acquisitions, including the state-owned Rover car group.

The Professor's nemesis was a disastrous pounds 432m rights issue, but out of those ashes has risen a phoenix. From the low of 113p a share, hit in September 1992, British Aerospace has since been one of the best stocks of the decade, with the shares now trading at above pounds 17. The lesson there is that management does not have to be new to make an impact. Sir Dick Evans, the chief executive who has been the main architect of the recovery, already had 21 years at BAe under his belt when he took over in 1990.

Astute investors continue to seek out other BAe's in the making. Great things were expected at Great Universal Stores after Lord Wolfson, seen as the saviour of the Next store chain, took the chair. Martin Taylor, a former journalist, was expected to revitalise Barclays, while Niall FitzGerald is shaking the tree at Unilever. Meanwhile, Stuart Wallis is again at work at Scholl, the sandals and footcare group. But remember, stock market history is littered with management failures as well as successes.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The Doctor and Clara have their first real heart to heart since he regenerated in 'Deep Breath'
Arts and Entertainment
James Hewitt has firmly denied being Harry’s father
arts + ents
Arts and Entertainment
Jamie Oliver
filmTV chef Jamie Oliver turned down role in The Hobbit
The official police photograph of Dustin Diamond taken after he was arrested in Wisconsin
peopleDownfall of the TV star charged with bar stabbing
Life and Style
Arts and Entertainment
Jeremy Clarkson, left, and Richard Hammond upset the locals in South America
tvReview: Top Gear team flee Patagonia as Christmas special reaches its climax in the style of Butch and Sundance
Ashley Barnes of Burnley scores their second goal
footballMan City vs Burnley match report
Arts and Entertainment
Peter Mayhew as Chewbacca alongside Harrison Ford's Han Solo in 'Star Wars'
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Man of action: Christian Bale stars in Exodus: Gods and Kings
Life and Style
Apple showed no sign of losing its talent for product launches with the new, slightly larger iPhone 6 making headlines
techSecurity breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Arts and Entertainment
Catherine (Sarah Lancashire) in Happy Valley ((C) Red Productions/Ben Blackall)
Arts and Entertainment
Clueless? Locked-door mysteries are the ultimate manifestation of the cerebral detective story
booksAs a new collection of the genre’s best is published, its editor explains the rules of engagement
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?