PRECIOUS YET SIMPLE WEAPON OF BEST CEOS

I remind myself every morning: Nothing I say this day will teach me anything. So if I'm going to learn, I must do it by listening. – Larry King

In daily practice, consensus opinion is frequently used in politics, sports, traffic routes, or stock market. According to numerous academic studies, consensus estimate is the best valuation to use when resolving an unknown. Consensus estimate is the pooled prediction of analysts covering a public firm, specifically a company’s quarterly or annual earnings per share.

Having said that, a CEO’s primary goal must be to become very transparent in order to operate his business. A good company top executive pushes for full disclosure of accounting and other operational items. He should also be present and meet investors, analysts, and the investing public. Transparency entails:

• Listening to Feedback – The investment public would be equipped with a substantial amount of information to figure out the best action plan for the firm, provided the CEO becomes successful at first point. CEOs simply have to listen and digest feedback. This can be done by reading a research analyst reports and asking questions to them, as well as looking into the estimates and assumptions of an analyst. Moreover, CEOs should make themselves visible to shareholders by attending events such as investor conferences. They can also take cues by observing market actions.
• Screening Market Noise – A good CEO must filter out market noise and search for consensus themes by creating a strategy mosaic. He may employ the market-suggested path and combine it with the organization’s techniques to optimize decision-making performance.

CEOs can either heed the market’s advice or take an aggressive tone when it comes to running their company. Certain top executives, due to extreme pride, take up an almost opposite stance stated by the market to prove they can decide on the company’s whereabouts all by themselves. These CEOs consider analysts as meddlers. On the other hand, top executives that listen to wise counsel think before act.

How can traders find street-savvy CEOs?

First, evaluate their transparency. Investors can check this by reviewing EPS announcements of companies, looking for their presentations on their website, and most importantly, keeping an ear on their conference calls. These CEOs visit with analysts and shareholders to comprehend their ideals and start forming their consensus strategy.

And, compare corporate strategy and market sentiment. Traders, match up the items outlined in analysts’ reports that are good moves to corporate strategy. For instance, if analysts emphasize courses of action and the chief executive picks it up, that is a good sign. Check also if corporate policy goes with or against the grain. Investors may get hints from seasoned investor Warren Buffett. He invests in a company in which its CEO keeps an ear to the Street because corporate governance is a big, real deal for him.