Three Companies With Extraordinary CEOs
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the most exciting aspects of investing in the stock market is that it provides access to all kind of opportunities; you can have your money invested in truly amazing companies among all kind of industries and from different parts of the world. Just as important, you can choose among many of the best CEOs on the planet to manage your invested capital over time.
Think about it for second -- buying shares of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) allows you to have your capital managed by Warren Buffett himself, arguably the best capital allocator alive. Buffett has compounded Berkshire´s capital at almost 20% annually from 1965 to 2011, more than double the 9% delivered by the S&P 500 index over the same time.
The Oracle of Omaha has almost all his net worth invested in Berkshire, aligning the interests of shareholders with his own interests in an indisputable way. Buffett won't be alive forever, but he is actively taking care of the transition to ensure that the company will remain in good hands.
Buffett's three main jobs--chairman, chief executive, and chief investment officer-- will be handled by different persons: one chairman, likely to be his son, Howard Buffett; one CEO who has been identified but not yet revealed; and a team of investment managers of which Todd Combs and Ted Weschler are expected to be an important part.
It wouldn’t be reasonable, or even fair, to expect from his successors the same kind of extraordinary genius Buffett has shown over the decades. But the Oracle of Omaha has a good eye for picking capable and honest business managers, and Berkshire has a long-standing culture of stewardship. This should allow investors in the company to sleep soundly at night when it comes to thinking about Buffett´s succession at Berkshire.
It's nice to have the founder of the company pulling the ropes; when someone has invested a big portion of his life building a business, we can be comfortable that he understands the company, its culture and the industry in which it operates. Besides, CEOs who are also founders are more prone to having an emotional connection with the firm, basing their decisions on the long term growth and wellbeing of the company, as opposed to quarter to quarter profit numbers.
Jeff Bezos of Amazon (NASDAQ: AMZN) is another great example. Bezos has always applied a long term mentality to business management and capital allocation decisions, investing heavily to push Amazon into several business lines with big disruptive potential like cloud computing, even if it means lower profit margins in the middle and short term. Amazon is one of the most innovative companies in the world, and the company´s CEO is a big factor behind that.
Bezos has been a great asset for Amazon shareholders: over the past six years, he has earned an average of $1.4 million in total compensation, most of which is the company’s cost of security provided to him (he takes a $81,840 in annual salary and hasn’t had a raise since 1998). Since he took his company public in May 1997, Bezos has delivered an annual 36% return to shareholders, which is significantly better than the 5% annual return for the S&P 500 over that period.
Howard Schultz is the barista to the world; he founded Starbucks (NASDAQ: SBUX) in the 80´s and built a coffee empire from a single coffee store in Seattle, practically inventing a whole new product category. If that weren´t enough, in 2008 he returned to the company after an eight year pause to restructure it, reinvigorating the brand, closing unprofitable locations, launching new products and making it stronger than ever.
2008-2009 was a challenging period for Starbucks. The company had expanded inefficiently and people were feeling the pain from the recession, so profitability was being hurt. At the same time, McDonald's (NYSE: MCD) was aggressively growing in the coffee business, capitalizing the enormous value of its real estate assets and undercutting Starbucks in price, an important variable during a recession.
McDonald´s is a formidable competitor; it has an unparalleled geographical presence, a worldwide recognized brand and strong economies of scale due to its size advantage. In fact, entering the coffee business was a very profitable decision for the fast food leader, and the company is still betting on growth via its McCafé stores on a global scale.
But that hasn´t really hurt Starbucks much. There is much more than coffee going on here: Customer experience and cultural footprint are perhaps even more important than the coffee itself, and Howard Schultz understands those concepts like no one else. Product innovation, geographical expansion and one of the most valuable brands in the planet are some of the things Schultz is responsible for, and investors have good reasons to appreciate that.
A strong leadership is one of the most important factors behind the success of a business, and investors should never disregard the importance of a CEO when it comes to selecting the best stocks. Managers who understand the company and its industry, who are aligned with shareholders interests and have a long term focus can be one of the best things a company can offer to investors.
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acardenal owns shares of Berkshire Hathaway and Amazon.com. The Motley Fool owns shares of Amazon.com, Berkshire Hathaway, McDonald's, and Starbucks and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Amazon.com, Berkshire Hathaway, McDonald's, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.