Management is important -- but how do you evaluate it?

Like most investors, I think that one of the most important factors when evaluating a potential investment is the quality of management: You are entrusting them with your hard-earned money in the hope that they can earn higher returns with it than you can by yourself. But I often struggle with evaluating management. The first thing I look at it insider ownership and executive compensation. But couldn't a bad executive own a lot of stock in a company? And does the fact that a CEO appears to be overpaid mean he's bad? And aren't there plenty of executives who make comparably little, but deserve even less? And the past-performance of the stock can be misleading too. Which factors were out of the CEO's control? In the case of Wal-Mart (NYSE: WMT), the stock has performed poorly since Lee Scott took the reigns as a result of multiple consolidation. The stock was overvalued when he was hired, but does that make him bad?

Fund manager and columnist Whitney Tilson has an amazing column in the weekend's Financial Times, where he collects some of the greatest wisdom on evaluating managers from a handful of great investors.

I would urge all investors to read Tilson's column, and I would throw in another one of my favorite quotes about management.

When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact. -Warren Buffett

Strong management is one the sine qua non's (Special thanks to Mr. Metzger, my high school Latin teacher) of a strong investment, but it almost never compensates for a bad business.