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
football This was Kane’s night, even if he played just a small part of it
travel Dreamland Margate, Britain’s oldest amusement park, is set to reopen
Founders James Brown and Tim Southwell with a mock-up of the first ever ‘Loaded’ magazine in 1994
Threlfall says: 'I am a guardian of the reality keys. I think I drive directors nuts'
voices The group has just unveiled a billion dollar plan to help nurse the British countryside back to health
The Westgate, a gay pub in the centre of Gloucester which played host to drag queens, has closed
ebooksA special investigation by Andy McSmith
  • Get to the point
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

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss