Napoleon Would Short These 2 Stocks
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What made Napoleon such a great military leader? Focus. His strategy consisted of “focusing” on one part of the enemy and quickly defeating that part. While he possessed numerous admirable qualities, his ability to focus set him apart from the leaders of his time.
Two tenants of focus
It’s becoming increasingly evident that some of today’s front-page CEOs have been skipping history class. Take a moment to dust off your old business textbook and you’ll find that the role of a CEO is to “increase shareholder value.” While the charge lacks direction, it can be accomplished by completing two tenants of focus.
1. CEOs should focus on a company’s core competency – A business typically does one thing well. A CEO should help the business do it better.
2. CEOs should focus on increasing long-term shareholder value – Avoid unbearable (bet the farm) risk, unnecessary expenses, and act in a way that increases long-term profits over short-term gain.
Successful CEOs uphold these tenants, while those who neglect them are likely to find their businesses struggling. Let’s see how top CEOs stacked up in recent months:
In April, Amazon (NASDAQ: AMZN) CEO Jeff Bezos issued his latest letter to shareholders. In it he explained how the company is sacrificing this year’s profits in order to create long-term customer and product opportunities. Revenue rose 22%, while net income fell 37%. Bezos believes the sacrifice will create larger profits for next year, and for many years thereafter.
Continued focus on Amazon’s ability to create, deliver, and maintain low-priced products sounds like a wise move. Given Bezos’s history of focusing on Amazon’s core competencies, it seems likely that an increased investment now will translate to increased profits later.
It would be a far cry for investors to want Bezos ousted from Amazon. Jamie Dimon probably wishes that all JPMorgan Chase (NYSE: JPM) shareholders felt the same way. Dimon has been in the news after a shareholder vote allowed him to maintain his roles as Chairman of the Board, President, and CEO. Despite his many responsibilities, Dimon has kept his focus fixed on the company’s shareholders.
In 2006 Dimon recognized that subprime mortgages were becoming increasingly risky. In turn, it soon reduced its involvement with mortgage-backed securities, giving up fat short-term profits for drastically decreased risk. This allowed the firm to “avoid” the credit crunch to some degree and it was rewarded with a cheap acquisition of Bear Sterns. With continued focus on shareholders, Jamie Dimon is poised for another successful year.
Napoleon’s short (the bad)
Mark Pincus, former CEO of Zynga (NASDAQ: ZNGA), came under scrutiny as shareholders watched their stock fall nearly 50% in the past year. Lacking revenue, and direction, it appears Mr. Pincus forgot his company’s core competency. To be fair, most investors aren’t sure what Zynga’s core competency is anymore, but maybe that’s the problem.
Under Mr. Pincus’s leadership and near its 52-week low Zynga’s stock is worth 80% less than its IPO. Perhaps new CEO Don Mattrick can turn things around. He formerly ran Microsoft’s Xbox division, and Zynga shareholders hope that he can bring with him the “niche focus” that helped the Xbox.
Last month, former CEO of Chesapeake Energy (NYSE: CHK) Aubrey McClendon retired due to increasing pressure from two large shareholders. Since then, numerous problems have come to light.
Reportedly, McClendon was operating a $200 million hedge fund that traded the same commodities that Chesapeake produced. In addition, McClendon has taken over $1.1 billion in loans against his stakes in Chesapeake oil and gas wells. It’s clear that McClendon’s failure to focus upon shareholders led to a significant conflict of interest for the former CEO.
Ronald Johnson, now former CEO of J.C. Penney (NYSE: JCP), was known for his retail work with Apple. Chosen to rejuvenate its aging brand, he launched a new promotional strategy. No longer would there be coupons. Instead, everyday would be a sale day, with the savings already built into the price. Unfortunately, this alienated J.C. Penney’s core consumer. The company’s failure to focus upon its core customers resulted in decreasing sales and a falling stock price.
In March, the retailer again began issuing coupons. It’s up to new CEO, Mike Ullman, to make sure J.C. Penney continues to focus on its core business and customers. The company has learned the lesson the hard way, and I doubt shareholders will let Ullman forget it anytime soon.
A battle you can win
J.C. Penney’s fall illustrates yet another example for investors to scoop up beaten-down shares on the cheap. Read letters to investors, listen to keynote addresses, do your homework and learn if the CEO is abiding by the two tenants of focus. The CEO's of today should follow Napoleon's example. Implement the two tenants of focus and perhaps they will win the battle for the company’s future.
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This article was written by Joshua Sauer and edited by Chris Marasco. Chris Marasco is Head Editor of ADifferentAngle. Neither has a position in any stocks mentioned.The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and JPMorgan Chase & Co. and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!