The relative quality and skill of the CEOs and CFOs who lead public companies are usually the largest idiosyncratic factors that differentiate their companies' stock price from industry peers.
Management ability is a factor orthogonal to other smart beta factors that are now commonplace. Appraisals of management skill however are usually ripe with cognitive and recency bias that is better described as “right time, right place” luck. Brokerage Analysts and other pundits often have vested interests in their stated opinions. CEO and CFO changes at companies often mark major inflection points in operating performance and capital allocation.
By using fact-based inputs for operating track records and skill sets, investors can substantially improve their returns and avoid so-called value-traps. Sifting through executive changes can identify significant outperformers within industry and style groups.
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