3 Keys to Success From This $6.9 Billion Man

Advice on why industry expertise is essential for investing success, from the first businessman to found two Fortune 500 Companies in two separate industries.

Aug 10, 2014 at 7:36AM
Elibroadcom Pic

Source: Elibroad.com.

In 1955, Eli Broad's story wasn't too different from those of many Americans. He graduated from a good college, got married, and was working as a CPA and assistant professor. 

By 1957, he co-founded what would become his first Fortune 500 Company, KB Home, and by the late 1980s he repeated the feat with insurer SunAmerica, making him the first person to found two Fortune 500 companies in different industries. Today, his estimated net worth stands at $6.9 billion .  

Between 1955 and 1957, nothing about Broad's personality or mental capacity changed. He wasn't bitten by a radioactive spider, and he didn't take any special pills to enhance his brain power (that we know of). Broad did, however, become an expert.

What his story demonstrates is by dedicating all of your energy to becoming an expert in one industry, rather than attempting to understand every sector, is the key to finding great opportunities. 

1. Become an expert
Working as a CPA, Broad wanted more -- "more money and more excitement" -- and he believed real estate was where he would find it. Like many of today's job seekers, however, Broad's attempts to land a career in homebuilding were denied for lack of experience. 

Unfazed by his lack of success, Broad decided to take a leap of faith by starting his own homebuilding company. He read every industry magazine he could get his hands on, studied homebuilders for what worked and what inefficiencies he could improve upon, and partnered with experienced real estate expert Donald Kaufman -- the "K" in KB Homes. 

He was relentless in his effort to expand his expertise, and that was the key.

2. Ask the right questions
Many investors focus primarily on specific companies, or stocks, but that could be a mistake. Your focus should start with gaining a vast knowledge of an industry, because when you understand an industry, you start asking big questions -- the questions that go beyond quarter-to-quarter analysis and cut to the core of a company's future. 

As Broad's expertise grew, he saw one very important macro trend emerging. A whole new generation of homeowners, baby boomers' parents, were leaving the cities and flocking to the suburbs. Broad believed that if he could improve on the inefficiencies he saw, he could lower the cost of housing enough to where homeowners' mortgage payments would cost the same as renting an apartment.

One of the more notable ways Broad was able to make that happen was by building homes without a basement. That may not seem revolutionary now, but it was fairly radical for the time. 

The idea, along with Broad's keen eye for finances, helped keep housing prices down, and the company exploded, expanding from Detroit to Arizona, then California, and then France, all within 10 years of the company's founding. KB Homes went public in 1986. 

3. Diversify
Broad wasn't satisfied. He understood that the housing market is cyclical, and he wanted to generate more consistent returns. So Broad turned to one of the oldest investing strategies in the book: "diversification," the process of reducing risk by investing in multiple market sectors and investment vehicles. 

However, when you truly understand what makes an industry tick, you can diversify with a purpose. Broad realized that real estate growth is strongest during lower-interest-rate environments and economic boom times. To smooth out volatility, he needed a business that could perform well in less favorable economic climates, and insurance was the perfect fit. 

Insurance is an essential. In good times or bad, consumers and businesses need to be covered against risk. Also, when interest rates rise, insurers can invest the premiums they collect from customers at higher rates, which generates greater investment income. 

Broad would build the company's insurance arm into a powerhouse provider of retirement savings plans, such as annuities. Broad split the company up in 1989 and created two separate publicly traded companies -- KB Homes and SunAmerica. Broad sold SunAmerica to American International Group in 1999 for $18 billion. 

The last word
Broad's passion for real estate and the expertise he developed allowed him to understand and take advantage of two major trends: the need for affordable housing in the 1960s and the need for that same population to plan for retirement. 

What trends will dominate the next decade in tech, health, energy, finance, and other sectors? I believe that by becoming an expert in one industry, rather than spreading your focus too thin, investors can spot hidden gems primed to take advantage of tomorrow's economy.

Billionaire Warren Buffett is scared of your next investment
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool recommends, owns shares of, and has options on AIG. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers