Don't Buy a Company, Buy a CEO

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At its core, investing in a great company means investing in the people who work there. At most companies, there's no one more important to investors than the CEO. When things go well, we shower the CEO with praise. When things go poorly, we bash the CEO incessantly for whatever flaws we can find.

So what should we look for in our CEOs? While some ideal qualities wouldn't make these people great drinking buddies, the right traits could nonetheless help investors make money.

It starts with a vision
The common element of great CEOs is the vision they instill in a company. CEOs are especially important in companies that make only a small number of different products, because their vision gets embedded in everything the company does. Look at how involved Steve Jobs is in every product's design, functionality, and sales at Apple (Nasdaq: AAPL  ) . It's highly unlikely that the company would have been so successful without his vision.

The same can be said for Netflix (Nasdaq: NFLX  ) CEO Reed Hastings, who was recently named Fortune's Business Person of the Year for 2010. Hastings had the vision to move Netflix into streaming media, and subscriber growth is accelerating as a result.

If you purchased either of these companies five years ago, it probably wasn't because you could clearly envision how they'd look today. It was because you could trusted the leader of the company to instill the right culture and vision companywide.

Big ego, big money
Ego is rarely portrayed as a positive trait, but for a CEO, just the right splash of hubris can go a long way. You can credit Las Vegas Sands' (NYSE: LVS  ) stock price over the last 18 months to the ego of one man: CEO Sheldon Adelson. He not only had the vision to foresee Macau becoming the gaming capital of the world, but also the moxie to put $525 million of his own money into a seemingly doomed company in the fall of 2008.

Adelson was the single reason I invested in the company in March 2009. I bought into the vision he had for the Cotai Strip, and more importantly, I knew that his ego would not allow the company to fail.

Oracle's (Nasdaq: ORCL  ) Larry Ellison is another man with a vision and an ego as big as his net worth. But that ego has helped drive share values up more than 100-fold since 1990, despite many changes in the software industry.

Of course, finding the right balance is a challenge where ego's concerned. Richard Fuld had enough arrogance to drive Lehman Brothers straight into the ground. It's clear that self-importance untempered by vision won't get you anywhere.

Sprinkle in some luck
In business, like investing, sometimes it just takes a little luck. When Steve Jobs bought Pixar, he happened upon a revolution in moviemaking. Yet that success didn't spring from his vision, but rather from current chief creative officer John Lasseter's. Sometimes it's better to be lucky than good.

Even Google (Nasdaq: GOOG  ) has been a little lucky that competitors Microsoft and Yahoo! weren't able to build better search-engine business models before Google became dominant. Who would have thought that two kids in a dorm room could change the way we use the Internet? There has to be at least a little luck involved.

Who's next?
So who'll be tomorrow's great CEO stories? The first name that comes to my mind is Tesla's (Nasdaq: TSLA  ) CEO Elon Musk. He has the vision and just enough ego for my taste. Tesla is leading the electric car revolution, and when the Model S reaches the road in 2012, it will be like nothing we've ever seen before. I can't wait to see what's next for Tesla.

But my favorite is Steve Ells, co-CEO and founder of Chipotle (NYSE: CMG  ) . He may not be a newcomer, but at age 45, he still has plenty of time to add value for shareholders. After conquering the art of fast, tasty Mexican food, Ells is now setting his sights on Asian cuisine with a concept set to launch next year. Maybe he spent enough time seeing lines at Tokyo Joe's in Denver (my favorite restaurant of all time) to realize that an Asian concept would be perfect for Chipotle.

My honorable mention goes to Wang Chuan-Fu of BYD. Anyone who has the guts to tell Warren Buffett that the Oracle can only buy a limited stake in his company is someone I want running my business.

Find the right leader
Sometimes a CEO can make a company more than you ever imagined. If you can find that visionary leader, push your chips in and hang on for the ride.

What CEO are you investing your hard earned money with? Leave your picks in the comments section below.

More Foolishness:

Google is a Motley Fool Inside Value pick. Chipotle Mexican Grill and Google are Motley Fool Rule Breakers selections. Apple and Netflix are Motley Fool Stock Advisor recommendations. Chipotle Mexican Grill is a Motley Fool Hidden Gems selection. The Fool owns shares of Apple, Chipotle Mexican Grill, Google, and Oracle. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Travis Hoium misses Tokyo Joe's, and hopes the company will go public some day. He also does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. 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.

Read/Post Comments (6) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 17, 2010, at 10:18 PM, Oddthink wrote:

    This is what interests me about Supervalu (SVU) and its new CEO who came over from Walmart.

  • Report this Comment On December 17, 2010, at 10:21 PM, Chartel wrote:

    Very many investors seem to feel the same way about Adelson of LVS -- just look at the stock price jump over the last 20 months from $2. to now $46.

    However, there is another side to be expressed here.

    First and foremost is the fact that the only reason to buy this stock is because you believe someone else will buy it from you for more later, right? Some call that smarter buying from smart. Some call it the greater fool theory in action.

    The fact remains that this spashedly hubristic CEO owns 52% of the company stock, so there is never a reason to think profits will ever be shared with stockholders in terms of dividends or yield. That's the reason why the only reason one buys this is because of the hope that someone else will pay you more for the same intrisically profitless stock. Same goes for many start-ups, of course, but is a company showing $31B in stock value a start-up? Shareholders revolt to force profit-sharing? Not unless you can muster 51% of what's not available to you -- not in this universe, anyway.

    Did you notice how the company news on 10% increase in room occupancy in Vegas just barely preceded the news that the vastly more important Cotai sections 7 & 8 are now officially out of reach to LVS?

    Of course, that's not hubris, per se. That's just a bit more damage control in a company seeking to keep your head turned the other way when about to be blind-sided. The loss of Cotai 7 & 8 is very impactful. Japan??

    Hubris -- one can get too much of a good thing, perhaps.

  • Report this Comment On December 17, 2010, at 10:27 PM, goalie37 wrote:

    It's a much smaller company, but Jon Bortz is one of the reasons I bought into Pebblebrook Hotels (PEB).

  • Report this Comment On December 18, 2010, at 10:56 AM, deemery wrote:

    A big part of the problem with companies these days is that every CxO/VP wants to be paid the same way that the -very few- real star CEOs are.

    For every Steve Jobs, there's several Robert Nardelli's out there.

  • Report this Comment On December 18, 2010, at 9:16 PM, nonqual wrote:

    My impression is that Musk lacks integrity. He stiffed five little boys under five years old, crawlfished out of a factory purchase in southern Kalyfornia, and cooked the books to claim a "profitable month" in July 2009 (while losing ~300 million at Tesla inception to date.) As Alan Sampson said in talking about leadership: "If you have integrity nothing else mattters; and, if you don't have integrity, nothing else matters."

  • Report this Comment On December 19, 2010, at 11:16 PM, GoodSwimmer86 wrote:

    I like noqual's post -- I don't want my money anywhere near the next Enron. Purchasing stock from a company is a big leap of faith that the company will use your money wisely and effectively to make more money.

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