There is a lot of debate on the parameters to use for screening your next investment. In the past, I have written an article detailing my investment criteria, which can be found here. Essentially, you are looking for long term growth with reasonable returns. The question then becomes, how do you know a given company is indeed a good investment once it passes your investment criteria?
The answer to the question above, is investing in owner operator stocks. You want to be owning companies wherein the founder/founder’s family is in top management. You may ask why? It is simply because a founder CEO cares more about the long term prospects of the company then a regular CEO (for whom this is just another job or a way to improve his/her career prospects).
A founder CEO would shun the short term view (i.e. none of the quarterly Earnings beat focus), and look at the long term opportunities for the company. In the process, he/she would be willing to pay themselves a lower pay than the industry average, and this would reflect in the salary expenses for the other senior executives in the company as well. This adds up well for an investor looking for a long term value as a founder CEO would ensure a dollar spent is a dollar well spent.
Interestingly, founder CEO companies have done well compared to non-founder CEO companies. This is simply because for the founder, his/her company is the sole means of income. Both their future and reputation depends on it, as they do not want their hard work of many years go to waste. Compare this to a CEO who has just been appointed by the board of companies, and his/her interest is aligned with the company only until the company is performing well.
Also, the founders in the owner operator stocks control a larger percentage of the company shares than the industry. This enables them to take decisions which are aligned with their vision rather convince the many controlling investors looking for their self-interest to be doing so.
Few examples of the owner operator stocks include, Facebook, Google, Apple (when Steve Jobs was alive), Linamar (the CEO is the founder’s daughter), Fairfax Financial, Lassonde Industries, Constellation Software, Shopify, Alibaba, etc.
So you see how CEOs in the the owner operator stocks are better for us investors. They simply have a lot at stake here.