Over and over again, I've heard Motley Fool Rule Breakers chief David Gardner say that when it comes to investing, the best returns come from the best managers. Obviously, that sounds correct. But is it really true?
Yes
I put David's theory to the test by researching the best managers as selected by BusinessWeek, using the magazine's repeat performers from the 2003 and 2004 lists. I then winnowed the choices to those who had been on the job at least five years and who are still chairman or CEO today:
|
CEO |
Company |
Start date* |
CAGR through |
|---|---|---|---|
|
George David |
United Technologies |
4/18/1994 |
20.6% |
|
Steve Jobs |
Apple |
9/16/1997 |
31.3% |
|
Meg Whitman |
eBay
|
9/24/1998 |
36.9% |
|
Richard Kovacevich |
Wells Fargo |
11/2/1998 |
11.4% |
|
John Thompson |
Symantec |
4/11/1999 |
37.5% |
|
A.G. Lafley |
Procter & Gamble |
6/8/2000 |
14.5% |
|
Terry Semel |
Yahoo! |
5/1/2001 |
19.4% |
|
Carlos Ghosn |
Nissan Motor |
6/21/2001 |
11.4% |
In the case of Whitman, her start date equals the date eBay went public. But even without the auction king, the annualized return for this portfolio is an astounding 21%.
What do these leaders have in common? Tenure. While each brings passion, creativity, and talent, it's really their commitment that makes the difference. They average 7.5 years on the job, and in that time, their companies have seen steady fundamental gains. Take Apple -- since the beginning of the second Jobs era, return on equity has improved from -64% in 1997 to more than 23% in the past 12 months. Or consider Dell
Rule Breaking managers
Interestingly, the same holds true for high-growth stocks. Among the four multibagger picks David and his team have made for Rule Breakers subscribers, one has a CEO who was a founder like Jobs and has been on the job for 14 years. Another has a CEO who was brought in from the outside as Whitman was and has been steering the ship for nearly a decade. A third remains among the senior management of the team that acquired his Rule Breaking firm, giving him more than nine years on the job. And the runt in our litter of ultimate growth stocks was promoted to CEO only a year ago but has been an officer of the firm since its early days in 1998.
Also, and perhaps not coincidentally, the longest tenured of our Rule Breaking crew has delivered the best returns for subscribers, up more than 200% since joining the portfolio. When looking for great growth stocks, invest in those with tenured management, which owns at least 1% of the company they run, and which has been at the helm during a period of rapid improvement in fundamental metrics such as sales and return on equity.
The secret of great growth stocks
I don't believe it's coincidence that our best stocks are run by the most committed CEOs. After all, David and his team spend ample time researching managers. And why not? They're the ones with the ambitious visions that ultimately lead to rebellious returns.
Want more insight on how David finds the best of the best? Try Rule Breakers free for 30 days. Click here to get started.
Fool contributor Tim Beyers only breaks the rules in his portfolio. Wimp. Tim owns LEAP options in Apple. Get the skinny on all of Tim's stock holdings by checking his Fool profile. Symantec and Dell are Motley Fool Inside Value selections. eBay and Dell are Motley Fool Stock Advisor picks. The Motley Fool has an ironclad disclosure policy.
