Growing Rich - Arabictrader.com

GROWING RICH WITH GROWTH STOCKS
buy more of the stock, even though its share price had been
floundering. That was a good move, since shares of General Re shot
up in value once word of the Berkshire acquisition was announced.
INTEGRITY COUNTS
When Don Yacktman does research on a potential investment, he
is especially interested in checking out the integrity of the people in
charge of running the show, although this isn’t always something
that can be determined right away. “The only way you can get a sense
of what kind of people they are is by talking with them and asking
a lot of questions,” Yacktman maintains. “I want to know what their
strategy is for the cash that’s being generated. I want to make sure I
completely understand the business. One of the things I listen for is
how straight they are in answering my questions. Are they willing to
share their true inner feelings about the issues that are important to
me? Usually I’m not asking about quarterly earnings estimates. I tend
to focus on long-range issues, their vision for the future. And I judge
them not only on what they say, but more importantly by what they
do. That’s how they build credibility. I’ll give you a good example.
One stock I’ve followed for a long time is Ralston Purina. I feel very
confident in my ability to predict what CEO Bill Stiritz is going to do.
He’s established a pattern over the years. In most cases, managements
become predictable based on what they’ve actually done in the past.
A management that’s not straight with its shareholders will eventually
get nailed for it.”
GOOD MONEY SPENDERS
Beyond that, Yacktman wants a management team that will live
up to its promises, while making good use of the company’s assets.
“All of my businesses are very profitable and tend to generate a lot
of excess cash,” he says. “I want management to reinvest that cash
to earn an even higher return. The way they allocate this money is a
good litmus test for how shareholder-oriented they are. Companies
basically have five options as to what they can do with excess cash.
Listed in order of importance, they can first put it back into the
business, through research and development, marketing, and cost reduction.
The other four options are making an acquisition, repurchas-
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