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A lesson for investors from the true life of Carlos Ghosn

As the story of Carlos Ghosn shows, even if a company has exceptional managers in place, investors cannot be certain what might happen to them and what impact that could have on the business

07/02/2019

Juan Torres Rodriguez

Juan Torres Rodriguez

Research Analyst, Equity Value

Investors’ fondness for a good story is a theme we have often touched upon, here on The Value Perspective – though never in so literal a way as fortnightly Japanese manga magazine Big Comic Superior once managed.

Back in 2001, it ran a comic strip chronicling the life of Carlos Ghosn, who rescued Nissan from the brink of collapse in 1999 but now finds himself under arrest in Japan and facing charges of financial misconduct.

The way ‘The true life of Carlos Ghosn’ tells it, young Carlos discovers his first superpower is the ability to tell the make and model of a car just by the sound it makes as it drives by.

One of the magazine’s editors told The Wall Street Journal at the time that Ghosn – one of the most respected businessmen in the world – “has a message of hope that has woken people up to new possibilities, and we wanted to convey that message”.

As things stand, it seems unlikely many in Japan will be viewing the more recent chapters in Ghosn’s life as containing much in the way of positive messages.

Indeed, barring a third act of redemption – and one of Ghosn’s better quotes is actually “You'll never convince me there is a hopeless situation or there is any finality in any success or any failure” – any manga sequel is likely to be titled ‘How the mighty have fallen’.

Mogul 'legends' could cloud your investment judgement

Few executives see their names as inextricably linked to a company as Ghosn has with Nissan but plenty are viewed by investors as crucial to the prospects of a particular business.

In that regard, it is worth mentioning Fiat Chrysler chief executive Sergio Marchionne, who is credited with reviving the fortunes of those two car brands and whose death last year shook markets, even though he had been counting down to retirement.

Over the last year or two, value-investing screens have started to highlight car manufacturers and, while that does not mean we will or will not be investing in the sector, here on The Value Perspective, examples such as these serve to illustrate how meetings with corporate management and the importance of certain people to a company’s narrative can end up eclipsing more objective considerations.

In our efforts to eliminate emotion from our investment process as much as possible – and tune out market ‘noise’ – such considerations include a company’s balance sheet, debt levels and, above all, valuation.

After all, as the most recent act in Ghosn’s life makes clear, even when a company does have truly exceptional managers in place, investors cannot be certain for how long they will be there, what might happen to them and what kind of impact that might have on the company’s share price.

In that way, meetings with corporate management and the importance of certain people to a company’s narrative – albeit perhaps not to the extent of creating a comic strip about them – can end up eclipsing more objective considerations.

Here on The Value Perspective – where we strive to exclude emotion from our investment process as much as possible, including tuning out market ‘noise’ – such considerations include a company’s balance sheet, debt levels and, above all, valuation.

After all, as the most recent act in Ghosn’s life makes clear, even when a company does have truly exceptional managers in place, investors cannot be certain for how long they will be there, what might happen to them and what kind of impact that might have on the company’s, er, story.

Author

Juan Torres Rodriguez

Juan Torres Rodriguez

Research Analyst, Equity Value

I joined Schroders in January 2017 as a member of the Global Value Investment team. Prior to joining Schroders I worked for the Global Emerging Markets value and income funds at Pictet Asset Management with responsibility over different sectors, among those Consumer, Telecoms and Utilities. Before joining Pictet I was a member of the Customs Solution Group at HOLT Credit Suisse.  

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