Ben Graham deemphasized this managerial factor in investment selection, but not because he did not think it was important. | P ART III IN MANAGERS WE TRUST Copyright 2001 The McGraw-Hill Companies Inc. Click Here for Terms of Use This page intentionally left blank. C HAPTER 11 GOING GLOBAL Warren Buffett repeatedly emphasized the importance of investing only with people you like trust and admire the phrase appears over a dozen times in The Essays of Warren Buffett Lessons for Corporate America . Ben Graham deemphasized this managerial factor in investment selection but not because he did not think it was important. Graham s trouble was the difficulty in measuring the management factor. He believed that until objective quantitative and reasonably reliable tests of managerial competence are devised and applied this factor will continue to be looked at through a fog. 1 The best Graham thought an investor could do to gauge the management factor was to look at historical financial performance as it is reported in financial statements. At the same time one of Graham s key principles of investing as business analysis focused squarely on integrity. Graham implored investors not to entrust wealth to someone else unless either 1 the investor could supervise that person or 2 the investor had unusually strong reasons for placing implicit confidence in his integrity and ability. 2 Graham was expressly talking about investment advisers but the point applies equally to managers. After all whether an investor uses an intermediary or not her wealth is in the hands of business managers. A fog still clouds the view of managerial ability and trustworthiness but consider two important points. First the corporate governance field has blossomed since Graham wrote and many people argue that it now contributes clearer ways of thinking about and measuring managerial integrity and effectiveness. Second Graham implicitly noted the importance of managerial trustworthiness when he deferred to the financial record as a gauge of managerial ability. As we just saw the reliability of historical financial statements .
