Tim Price on judging character and minimizing the risk of fraud

If people are determined to commit fraud, there is probably not much any of us can realistically do to stop them.  We do recall what won us over to investing in Vietnam, however, some years ago – apart from the extraordinarily attractive valuations and growth prospects of this admittedly frontier market.  We met with the chairman and chief executive officer of the country’s largest securities broker.  We confessed that we had some questions about the standards of corporate governance in the country.  She responded that they had indeed experienced a fraud perpetrated by the bank manager of a local bank.  As a result he had been executed. 

There are, however, certain steps one can take at least to minimise the risk of control fraud and the related risk of catastrophic capital loss.  One is obviously to develop an acute judgment of other people’s character.  One is not to invest in banks.  One is to allow oneself to be naturally drawn to superior allocators of capital, running shareholder-friendly businesses in which they already have a meaningful equity stake.  And one is to diversify anyway, because you simply never know.

~ Tim Price, "There Is Nothing New Under the Sun," Price Value Partners, November 21, 2022