What to look for in a business? Interview with Huzaifa Husain

This is an excerpt from interview by Safal Niveshak (SN). Acknowledge copyrights of Safal Niveshak.

SN: When you look back at your investment mistakes, were there any common elements of themes?

HH: Among the three things I look for in an investment – business, management and price – most mistakes happen in evaluating management. This happens especially if the management does not have a public history which can be evaluated.

The typical management behavior which hurts investors is their overconfidence. Business managers rarely will admit that they cannot deploy the cash which the business is generating. They will find some or other use for cash and eventually deploy it in a poor business.

Hence, it is best to use a higher threshold for management quality in case the business has historically retained most of the cash it generates.

Also public history of management is a very good guide. Don’t expect the management’s behavior will change because you bought the stock. It almost never will.

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