July 20, 2011
This article is part of our Rising Star Portfolios series. Click here to follow Jason on Twitter.
Recently, our CEO and co-founder Tom Gardner had the great fortune to interview Louis Zamperini. Recognized as an American hero, Zamperini was a World War II prisoner of war and is the subject of Laura Hillenbrand's new book, Unbroken. To wrap up our series, I sat down with Tom to talk more about his takeaways from his time with Zamperini:
Jason Moser: Louie's story is an incredible one. It really makes me think of the power of the human spirit. You said that he also made you think about leadership. What are the things you look for in leaders when you are looking at companies?
Tom Gardner: You said it, Jason. Louie's story is an unbelievable testament to the power of the human spirit. Reading the book and speaking with him reiterated to me some of the key qualities that I look for in leaders today.
- A leader does it first; he leads the way and sees what it's like so he can lead others with the knowledge of what may be next. In regard to companies, I think leaders need to be obsessed with and love their product. I mean if they don't, then why are they even there? To me, Apple's (Nasdaq: AAPL ) Steve Jobs and Nike's (NYSE: NKE ) Phil Knight are great examples of this.
- Leaders plan for worst-case scenarios. Typically for me this shows up on the balance sheet. During the financial crisis, some retail companies were prepared for this better than others. Coach (NYSE: COH ) , for example, historically holds plenty of cash and short-term investments (more than $800 million currently) and virtually zero debt, and CEO Lew Frankfort's guidance has helped the company continue to prosper. So when the financial crisis hit, there was some opportunity there in retail because some were financially healthier than others. Yes, business took a hit, but they were still going to be around after the dust settled, and investors who were paying attention found some really great deals.
- Great leaders have to be all in; there is no going halfway. So how do you find this? I like to look at the tenure of management. Founder-led businesses like Reed Hastings and Netflix (Nasdaq: NFLX ) are wonderful examples. Companies where the CEO has been there for a long time or where they promote from within, focusing on developing talent rather than trying to bring it in. I look for management turnover that's lower than industry average and companies where they create an environment where people want to be and stay.
Moser: Those are all great examples. So you also mentioned that Louie exemplifies many of the strengths that can actually make us better investors. Talk a bit more about that.
Gardner: It was so refreshing to hear his thoughts on finances and debt and how avoiding some of the most basic pitfalls can make life so much more enjoyable. Louie has so many strengths; there's not enough room or time to cover them all. But he did get me thinking about a few things that I believe we can all practice in order to become better investors as well as better people.
- It's good to be an optimist; you have to be able to look at how things can turn out well. Of course things can get worse, but staying optimistic can help you keep a level head. The numbers out there support that one out of three years in the market is a down year, but this also implies that two of those years are up years. Make no mistake, though. I am not a blind optimist; I'm an optimist based on the facts.
- Whatever you do that you love, that you spend time on, go for it all the way. You want to be the best. The best leaders in business and in life are always looking at how they can get better. When you think you've found your passion, you are trying to learn all you can to get better. My time with Louie challenged me to think, "How can I study even harder and get even better?" If it's not your passion, then you won't be able to sustain this. Yes, some can fake it for a while, but in the end it's simply not sustainable.
- The fact that he gave up skateboarding at 81 and skiing at 91 I think shows the importance of not only taking risks, but further taking measured, manageable risks. So when I come across young investors who are brand new to the concept, I say, "Pick a company you admire and put $200 into it. Get skin in the game, commit to two years and learn about it. Read about investing and learn how it applies to the company you own." From there you just want to get better and better. For all the sweet tooths out there, I say, "Start with the dessert of action."