Home Depot (HD 0.30%) might be seen as one of the most mundane stocks out there today. Unlike more exciting opportunities in technology or healthcare, Home Depot is mostly viewed as a brick-and-mortar retail outlet specializing in home improvement products.
Despite its humble profile, however, investors might be shocked to learn that owning Home Depot stock has helped many attain generational wealth. An investment of just $1,000 at the time of Home Depot's initial public offering (IPO) in 1981 would now be worth $17.5 million.
The trade-off here is that in order to reap these gains, you'd have been required to hold onto Home Depot stock for about four decades.
I recently listened to an episode of a podcast called American Optimist, hosted by Palantir co-founder and venture capitalist Joe Lonsdale.
During the podcast, Lonsdale interviewed one of Home Depot's co-founders, Ken Langone. Today, Langone is primarily known for his charitable contributions. However, during his discussion on American Optimist, Langone revealed some eye-opening insights into his investment philosophy.
Let's take a look at Langone's outlooks on investing, and explore ways that even the smallest of investors can mimic his success and build long-term, sustainable wealth.
Loyalty and patience
One of Langone's largest investments is in pharmaceutical company Eli Lilly. Lilly has a rich history of drug development, including medicines such as Cialis, Prozac, and Verzenio.
Today, Lilly is a major player in the diabetes and obesity care markets through its treatments Mounjaro and Zepbound. Moreover, the company recently gained approval from the Food and Drug Administration (FDA) for its Alzheimer's treatment, donanemab.
Langone has a long and detailed history with Eli Lilly. Before Home Depot, Langone had been involved with a medical devices company called IVAC Corp. In 1977, he sold IVAC to Eli Lilly and took stock as part of the negotiation. Some 47 years later, he's still a shareholder.
The big question is, how did he exercise such supreme patience over this time duration?
Langone shared that two qualities that work well for him in investing are loyalty and patience. Specifically, Langone believes in getting to know management teams on a personal level and understanding leadership's vision.
While most investors don't have the same access to corporate executives as Langone, a good proxy to getting to know a management team is to watch interviews of C-suite executives, listen to earnings calls, and even email investor relations personnel if you have a question.
If you're able to get a concrete idea of how management thinks and where they want to take the company over the long run, it becomes a lot easier to hold onto a stock for many years as opposed to panic selling at the first sign of turbulence.
For this reason, it's not difficult to see why Langone's average holding period for an investment is 42 years. He's constantly thinking about the long run, and his belief in getting to know management on a personal level and assessing their loyalty to shareholders and employees has clearly been a benefit over time.
Image source: Getty Images.
Pay it forward
Another aspect that Langone spoke about was the idea of paying it forward in an effort to build employee morale.
Ken co-founded Home Depot and helped grow it into a $400B company. But he's most proud of the 3,000 employees who started pushing shopping carts and are now multimillionaires.
-- American Optimist (@AmOptimistShow) July 3, 2024
Only in America, as Ken would say.
Full episode: https://t.co/HAWolTat1r pic.twitter.com/lgjC1Jkys1
These words might sound like common sense in the era of Glassdoor ratings and stock-based compensation. But many people still feel unenthused about their job or employer.
Langone makes it clear that when Home Depot was founded, he made sure to spread the equity around to the employee base -- regardless of their seniority.
It's not always easy to tell how management is sharing the wealth. But there is a way to see if top executives are getting paid even if shareholders aren't. When assessing an investment opportunity, it's probably a good idea to review a company's SEC filings, particularly the proxy statement (SEC form 14A). That will show you much the management team and board of directors are compensated.
If executive salaries and equity packages continue to rise in the face of consistent negative shareholder returns or highly publicized negative media coverage, it's likely that management's interests aren't aligned with their shareholders or employees. In the long run, these dynamics can lead to brand deterioration and a waning investor base.
The bottom line
The big takeaway from Langone's philosophies is that intangible qualities such as patience, loyalty, and employee morale are just as important as more tangible or measurable items such as financial metrics and key performance indicators.
I think investors looking to build wealth ought to give some thought into the people they are investing in, and not just the individual stocks.
