Why investors should think like a CEO

Why investors should think like a CEO

 

Investing in the share market is like buying a little piece of a company. So, why not start assessing that company in the same way its leader does, says PwC’s Mark Russell.

People who invest their money in securities or bonds essentially hand their money to a business, and often, it’s the chief executive of that company who decides where it’s spent.

The CEO is tasked with using the company’s money (some of it yours) to improve the company’s financial performance and drive money back in your direction.

Thinking simply, it’s easy to see therefore how both the shareholders in that company and the investment professionals working for them have similar goals to the CEO.

Would it surprise you, then, to learn that those in the investment business and business leaders are divided on certain subjects – particularly on the biggest risks that could potentially sink the organisation and affect shareholder value?

Limited crossover

PwC’s recent Global Investor Survey asked investment professionals and CEOs around the world what the top five threats were to a company’s growth. (See chart above.)

It found very few similarities between what CEOs and investment professionals thought. The top risk identified by investment professionals – geopolitical uncertainty – was the only factor that was also on the CEOs’ list, where it appeared in fourth place.

Other concerns, such as cyber threats (the joint fourth most pressing issue for investment pros) may be seen as a symptom of the speed of technological change (CEOs’ joint fifth concern). Even with rose-tinted glasses, there seems to be little to connect the groups.

We may assume that investors and business leaders are on the same page, but they’re not even in the same library.

It could help if investment professionals and even keen individual investors thought like the CEOs to whom they’re essentially handing over their money and entrusting their future wealth. After all, CEOs are the people on the ground with hands-on experience of the biggest risks that could derail their business, as well as the opportunities that could push the company into profitable growth territory, so we should be listening to them.

Can they meet challenges?

A good starting point is to understand how ready the companies you invest in are to meet the challenges ahead. Again, the Global Investor Survey offers an interesting perspective.

One of the most pressing business issues in New Zealand, and one that organisations across the country will know all about, is the availability of key skills.

PwC’s New Zealand CEO Survey 2017 offers a New Zealand-leader perspective, with skills such as leadership (84 per cent), creativity (81 per cent) and adaptability (75 per cent) all very much in demand by most Kiwi businesses.

Interestingly, the study shows that investment professionals haven’t considered the skills gap as a major threats to growth prospects.

Keen investors might want to consider how their business-investment ventures are chosen in light of the big issues, based on the information they have on hand.

Are their policies sound?

For instance, businesses looking to get the most out of the skills of their people might promote diversity and inclusion, have the ability to move skills flexibly to where the business needs them most, or use outsourcing and contractors to expand their talent pool.

It sounds like information that’s typically kept in-house, but many companies are eager to showcase their employment practices. The Rainbow Tick, for instance, is a great independent accreditation of diversity and inclusion.

Investing safely is all about making educated decisions around which horse you put your money on. So, before you invest, why not spend a little time thinking about the track ahead from the jockey’s perspective?

By Mark Russell

First published 1 February 2018

The editorial below reflects the views of the editorial contributor only and content may be out of date. This article is sourced from a previous JUNO issue. JUNO’s content comes from sources that it considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.