Rules 6 and 7 of the Top 10 rules for (really smart) investors6....

Rules 6 and 7 of the
Top 10 rules for (really smart) investors


6. MEET THE MANAGEMENT

The toughest task for investors is getting to eyeball executives, though long before he became a billionaire investor, Warren Buffett would just turn up and ask for a meeting. It was usually granted, too.

Successful fund managers spend half their time visiting companies. It's the sharemarket version of tyre kicking.

The next best - though more boring - thing is to go through the accounts forensically. They'll give you a good idea whether the company is stretching the truth.

One trick Abernethy suggests is going back to annual reports two or three years ago and comparing what was said with what was done. Also look at the bone fides of the board.

''You have to feel fundamentally compatible with the board because it appoints management,'' Villante says.

One thing's for sure: you want executives to have skin in the game.

''A manager should have a long track record of performance and own a material number of shares,'' says David Prescott, a director and portfolio manager of Lanyon Asset Management, which has returned 11.2 per cent in six months.

7. ON ITS OWN FEET

Who needs a stock asking for money all the time? ''Avoid companies raising equity rather than funding growth from growing profits. Otherwise it's using your money for its own management,'' Abernethy says.

''Go back to 2008. If it didn't raise money in the GFC that's a big tick. Some that did are coming back again for more money.''