This article is part of our Rising Star Portfolios series.
Some investors are fanatical about always seeking out outstanding managers in the companies in which they invest. I'm not one of them.
Don't get me wrong, I love a great CEO. All else equal, I'll invest in the company with better management. But for me, there are two important things to remember. First, not every business needs a phenomenal leader. And second, very few CEOs are truly outstanding.
With those profound thoughts, let's take a closer look at the leadership behind the four companies in which the Young Gun Portfolio is currently invested.
Pebblebrook: All about the jockey
My highest-conviction pick remains Pebblebrook Hotel Trust (NYSE: PEB). Even today, with the stock 18% above where we bought it a couple months ago, I still consider the stock compelling. For this company, it really is all about the management. I selected Pebblebrook to play my cheap hotels thesis almost entirely because Jon Bortz was the man in charge. This investment is a jockey play -- without Bortz, we'd be invested somewhere else.
Our investment in Pebblebrook is so dependent on Bortz because our thesis rests on the company being able to close hotel deals at extraordinarily low prices. I developed an opinion that hotels would be available at irrationally cheap prices in the near term, and then I searched for the best way to take advantage of those deals. Bortz, who has more than 20 years of experience buying hotels, had just come out of retirement to exploit the very same deals I was anticipating. Investing in his new investment vehicle -- conveniently, as easy for us as buying stock -- was a clear and easy decision.
Chiquita: A real-deal visionary
Google "Chiquita Brands" (NYSE: CQB), and it's almost certain that one of the first links will have to do with human rights violations. Since the company's start in 1870, various managers have made decisions that were, to put it politely, questionable. The company has freely admitted to paying terrorists off not to harm its farms or employees as recently as 2004.
That's a notable year, because it's also when current CEO Fernando Aguirre took over. In addition to a pleasant dearth of human rights issues since then, Aguirre has undertaken an aggressive and intelligently constructed plan for the company. Under the new CEO, Chiquita geographically diversified its banana sourcing, shielding against the worst of any single tropical storm. Aguirre also sold the company's cargo ships and leased them back, freeing up cash to pay down debt. Most importantly, the current CEO has overseen Chiquita's foray into salads, which offer not only growth, but also a higher margin than that on bananas.
All told, Aguirre has done a top-notch job so far. I'm confident that as he continues to execute his vision for the company, Chiquita will create value for shareholders.
Berkshire: Buffett. Enough said!
Lengthy tomes have been written about Warren Buffett's acumen as an investor, businessman, and CEO. Here at Fool HQ, one of our conference rooms is named after him, with these words etched on the wall: "I am a better investor because I am a businessman, and I am a better businessman because I am an investor." Berkshire Hathaway (NYSE: BRK-B) is a testament to Buffett's skill as both.
Warren Buffett. Image source: The Motley Fool.
That's why I'm content to keep more than 12% of the Young Gun Portfolio invested in Berkshire. Buffett's investing skills are unrivaled, and his people-allocation talent is no less essential. A roster of passionate, smart, and shareholder-aligned CEOs run Berkshire's owned operating business; in effect, Buffett has created a system so strong and well-designed that it barely needs him. His job is to allocate the excess capital -- essentially offering investors in the operating businesses icing on their cake.
Ampco: All in the family
Our newest investment, niche steel equipment manufacturer Ampco-Pittsburgh (NYSE: AP), should really be considered a family business that just happens to be publicly traded. Three generations are involved in running the company, from 102-year-old founder Louis Berkman to current CEO Robert Paul (Berkman's son-in- law) to two of Berkman's grandsons, who sit on the board. The manner in which the family runs the business makes me think that ongoing succession to new generations is the plan. The company invests for the long term, ignoring short-term blips and undulations in its cyclical business.
I'm not the only one with faith in the family behind the business. Fund manager Mario Gabelli, who directs $30 billion in investments in his GAMCO funds, has matched the family's roughly 15% ownership stake in the company, and he's content to passively allow management to do its thing. When I asked CEO Robert Paul about Gabelli's involvement in the company, I was told that the extent of the relationship is that Gabelli "calls once a year to make sure we're still in business." In my opinion, Gabelli's trust is well- earned.
So far, so good
Though I have no mandate for outstanding management in my investing process, our first four companies are certainly adept in that department. I am impressed with each CEO's track record, and I have high levels of confidence in all of our management teams going forward. If you'd like to tag along for the ride, you can easily follow all my trades and updates on Twitter.
This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios) here.
