I know, I know, the title sounds counter-intuitive, and you are probably wondering if I miswrote it or if you misread it. Read till the end, and I would love to hear your thoughts.
One of the easiest ways to determine whether a company is excellent or not is to see how it performs when mismanaged. When a good company is mismanaged, it gets into serious trouble, which is not true with a great company. A great company can be run by "meh" people who would continue to do well. On the other hand, good companies always require great people for great performance.
I have a theory. If a company has a long life, some "meh" people will always run it at some point. It happens for a variety of reasons, but it always happens. If it's a family business, no one knows if the next of your kin would turn out to be "meh". Professionally run companies would have people who perfected the art of climbing corporate ladders and running political machinations. In fact, the perceived value increases in my eyes for the company, which was temporarily mismanaged but still performed well.
Let's talk examples.
Banks: A bank can never be a great company. Banks are highly leveraged institutions in managing risks. No "meh" person has run a bank that wasn't run into the ground. Extremely few banks (I only remember JP Morgan) have lasted so long.
Sin businesses: Think alcohol, cigarettes, etc. You will find plenty of examples of such companies that have lasted centuries. It's a great business. One of the reasons ITC had a lower valuation for a long time is that the market considered the management's capital allocation ability to be poor. Now, maybe it was, or it wasn't. But that didn't stop the profits from growing.
I could give more examples, but I don't think calling people idiots publicly is a good strategy.
Oh, and by the way, it's true for countries too. You know who I am talking about.
Look around you and see for yourself. Which company did you believe was mismanaged and still performed very well? Please let me know the name; I am looking for new stock ideas 😉😉