Management is the First Fundamental

Management is the first fundamental to consider when evaluating smaller-cap companies. In "Good to Great," Jim Collins discovered that in the companies that made the transition from good to great, outperforming the market by at least three times over a 15-year period, the quality the CEOs all possessed was humility: the capacity to admit mistakes, consider new ideas, while habitually giving others the credit. Of course, the great company CEOs had many other qualities that contributed to their success, including the ability to keep their company focused on their core business, the business they could be the best at in their space. Be careful of companies that announce acquisitions that are not in their core business segments. Look closely at management's background, their history of achievement or non-achievement at previous enterprises in which they were involved. And remember, hubris at the top is rarely a good sign for small companies trying to grow.