Follow the Leader

Investors can take many different paths to find new investment ideas. Last week, I discussed how following the trail of success can lead to fruitful ideas for new investments. Another enjoyable and enriching way investors can find new companies to research is to play "Follow the Leader."

With adult supervision, the game is usually quite harmless. But with a little creativity it can get dangerous. (If you've ever watched Johnny Knoxville and friends on Jackass, you know the extremes it can go to.)

To play this game in the investing world, you follow actual leaders -- the people at the helm of public companies. When a successful leader decides to move on to bigger and better things, it's time for investors to investigate. If you own stock in a company with a new leader, you'll want to follow the trail backwards to see where he or she came from. In this second situation, investors may actually put themselves in harm's way if they don't play the game.

As an example, let's take a look at 3M's (NYSE:MMM) new CEO, George Buckley. Buckley's trail of success began at Emerson Electric (NYSE:EMR), a company with admirable characteristics for more than 50 years. A quick look into the company's past shows that there was probably no shortage of first-class mentors who could groom him into a leader with superior qualities. In 1997, Buckley took a position at Brunswick (NYSE:BC) and was later appointed CEO in June of 2000. During his tenure, he provided admirable returns to shareholders who had been underperforming the market for over a decade.

This success had 3M calling, since CEO James McNerney left to take over as CEO of Boeing (NYSE:BA) last June. Shares of 3M dropped after McNerney left, and they continued to fall after Buckley was handed the reigns. For those who had followed Buckley's history of success, this drop would have been quite compelling. In fact, the situation was attractive enough for Motley Fool Inside Value lead analyst Philip Durell to rerecommend it to subscribers. Where the market saw uncertainty, Fools saw greater value -- and so far, the Fools have gotten it right.

The great thing about this trail is that it could have led to another interesting path. 3M's prosperity under James McNerney's leadership and his pedigree as a former GE executive are reasons enough to follow his story. While Boeing's stock never traded at a big discount during its transition of executive power, the company should continue to thrive under McNerney, and the market seems to have the same outlook.

I find this method for discovering new potential investment ideas much more profitable than some of the more popular methods such as stock screening. It's much easier to remember a successful leader's name and history than it is to keep track of the ever-changing multitude of numbers behind a stock. Recognizing the people behind the numbers can make your research much more efficient -- not to mention intellectually and financially rewarding.

3M is a Motley Fool Inside Value recommendation.

Fool contributor John Bluis has no financial interest in any company mentioned in this article. The Motley Fool is investors writing for investors.