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One of the basics in stock market investing that you want to research in a company you’re interested in before you buy shares is their leadership.
When you buy shares of a company in the stock market you are buying a piece of that business.
Obviously if you were buying a business outright you’d look at the numbers.
And if you were keeping the CEO and leadership in place you’d want to know a little more about the people running the show.
That’s basically what you’re doing.
Warren Buffett has said multiple times that he invests in the leadership.
Often when his company Berkshire Hathaway takes over a company they leave management in place to keep running it.
Gary Vaynerchuck runs a media agency but has also made a pretty penny investing early in Twitter, Facebook and Uber.
In his content he likes to tell the story about how he passed on Uber the first couple of times.
He has also said on his videos and podcasts that he invests in the people running the show.
How he knew when he met Zuckerberg that he’d run a successful company.
Even if he wasn’t starting Facebook but was starting something else entirely.
So, how do you evaluate leadership in a company?
Not many people have the opportunity to meet Zuckerberg in person before the next Facebook becomes a big thing.
Not many have the chance after either…
Initial Research
First go to the company website, click around, if they have an about page or contact page the names of the CEO and upper management should be easy enough to find.
Read their bios on the company website and head over to Google.
See what else they’ve done.
You should also check out their LinkedIn.
Have they led this company to success for an extended period of time?
If they are relatively new to the company what track record do they have?
Do they have relevant experience at other companies?
Stock Market Basics: Social Media
Now that you’ve basically got their resume in your hands you can look into social media.
Don’t be creepy and Facebook stalk.
Go to their LinkedIn.
See if they have any posts related to the business and industry.
Go to their Twitter and the company’s Twitter.
Browse through their comments to see how they deal with customers online.
What you’re trying to get a feel for here is the company culture.
Company Culture
The culture of a company starts at the top.
How many times in your own office does the mood drastically change when the boss isn’t there?
Which is the culture that your customers or clients see?
They don’t see the relaxed atmosphere.
They see the the time set by the boss.
Is the culture of the business consistent with the message in their story?
If Apple started putting out boring commercials or had cluttered stores it wouldn’t jive with their values of simplicity and sleek design.
Let’s get into a couple quick examples.
Steve Jobs
We’ll look quickly at Steve Jobs and his business reign.
Everyone knows he led Apple to become one of the most profitable companies in the planet.
Most are familiar with his story, how he started Apple out of his garage.
Fired by the company and started Pixar.
Yes, the same Pixar that does all the Disney movies.
And how he was brought back to Apple when the business was tanking and brought it up from the depths to become the company it is today.
Through his pure genius and will.
Just looking at Jobs it should’ve been obvious that Pixar would be a home run.
That Apple would be an Investors dream.
That pretty much anything Jobs touched would turn into gold.
JCPenney
I chose this company because they’ve been through a few CEOs in recent years.
A little background on the company in case you’re not familiar.
JCPenney (JCP or commonly called Penney’s) is a department store found mainly in shopping malls in the US.
With the internet people are going to malls less to shop.
Department stores have been but hard and have been in decline for years.
JCPenney hasn’t recovered since the Great Recession.
Competitors like Mervyn’s and Sears no longer exist.
Before Penny’s hired Ron Johnson as CEO in 2011 their CEO was Ullman.
Under Ullman and the Great Recession the stock market price of JCP lost 65%.
The recession didn’t help JCPs books but consumers changed their habits as well.
The story of retail changed.
People shopped online a lot more and in malls a lot less.
They hired Johnson to make radical changes needed to turn the company around.
He previously worked for Apple and turned their stores into what they are today, “a sleek playroom filled with gadgets.”
The market loved the hire and JCP stock jumped when the news was announced.
His vision was to make Penney’s more like Apple.
He would make a mall within a mall.
Fill it with high quality brands.
Give the customer an experience that you can’t get shopping online.
Over the next year and a half the stock prices lost another 58% and he was fired.
JCP then brought back Ullman and they undid all the changed that Johnson implemented.
How it’s playing out today
Their original customers were happy.
Problem is there aren’t many original customers left.
They’re all shopping online.
And the decline has continued.
What he did is a little like quitting your job because you don’t like it.
Without having something else lined up yet.
And with no savings to fall back on.
When you look back at his ideas they make a lot of sense.
Most high end retail brands organize by brand rather than by type.
They feel more like a town hall within a store.
A mall within a mall.
So was Ron Johnson right all along?
He might have been in the long run about his ideas that make a successful retail store in today’s environment.
But it doesn’t really matter because the ideas weren’t executed properly.
In order for his strategy to have worked he either needed to test, implement his changes at a slower pace to not drive away loyal customers or have enough patience to attract the new following.
If he was CEO at a company you’re interested in, would you be afraid that he light repeat his mistakes?
Or would you be comfortable that he’s able to have a vision for the future and has learned from his mistakes in execution?
Fool me once shame on you. Fool me, you can’t get fooled again.
Stock Market Basics Wrapping Up
When you invest in the stock market you become part owner of that business.
It makes sense that you would be investing not only in the business but also the people running the show.
Famous investors have emphasized this strategy. Bet the jockey as well as the horse.
Company culture starts at the top.
The CEO sets it up and makes sure the business executes on that vision.
Investing in the stock market can be confusing.
That’s why I’m breaking down stock market investing into the basics.
It’s like learning anything really, focus and master the fundamentals and you’ll be better off than 95% of people.
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Investing is a long journey.
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