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From Bill Bonner, founder, Agora Inc.: One of the big mistakes of modern corporate management is to reward CEOs and other hired guns based on short-term performance.
This, backers say, gives them a stake in the results, almost like having “skin in the game.” They are motivated to produce good results.
But skin is not the same as heart. Skin is superficial… easily bruised, burnt, and readily salved with the grease of cheap credit and quick profits.
Heart is different. It is a deeper concern for the real health of the business—its products, its market, and its customers. Who has that kind of heart? Founders. Families. And owner-operators.
In his book, Bonner & Partners Chief Investment Strategist Chris Mayer introduces us to Peter Doyle, a money manager at Horizon Kinetics.
“Owner-operators, over an extended period of time,” Doyle says, “tend to outpace the broad stock market by a wide margin.”
Following owner-operators gives you an expected boost. The owners can also tip you off about when to buy… and when to sell. Chris explained, using the example of Simon Property Group:
It’s the biggest real estate mall operator in the United States. The stock had gone straight up. It was $26 per share in March 2009. It was $158 per share in 2014. The stock yielded 2.9%. It traded at more than 30 times earnings.
And the Simon family? They were sellers. The family dumped over $1 billion worth of stock on the market, which helped the float (or liquidity) of the stock. It was already a big ETF holding. It became an even bigger ETF holding.
So you have a situation where the stock is expensive and insiders are selling, but ETFs are mindlessly buying more. There were other property companies owned by insiders that traded for half (or less) the valuation of Simon with twice the yield.
And you can see in the chart below from UBS, family-owned companies tend to outperform:
Reeves’ Note: In just a few days, Bill Bonner will invest $5 million of his family trust in Chris Mayer’s new stock recommendations. Chris has received thousands of questions about the strategy behind this new service… so he’s hosting a special live Q&A on Thursday, April 21, at 1 p.m. (ET). When you register, you’ll have the chance to ask your questions—and have them answered.
Click here to register for this free, one-time event.