Don't Buy a Company, Buy a CEO

The right leader can make or break your investments.

Travis Hoium
Travis Hoium
Dec 17, 2010 at 12:00AM

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.

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