Almost every professional investor will tell you that they pay a lot of attention to "management" or "management quality" when considering whether to invest in a business or not.
Of course anyone can say they pay a lot of attention to management quality, but whether they really do or not in guiding their investment decisions is a different matter.
To be fair it's not easy for even an experienced investor to get a good read on how business savvy a management team may be.
Moreover, even if a management team is "smart" its interests might be more aligned to enriching themselves than the long term performance of the business and share price. And the smarter they're the better they will be at disguising this from investors.
After all most people will appreciate that in the world of business a lot of people are more interested in their own financial rewards than the mission or growth of a business.
So what's an investor to do?
The way to give yourself the best chance of buying businesses where management's interests are aligned with yours is to buy founder-led business preferably where the founder still holds a substantial stake in the business.
The advantages of this strategy are multiple and there's a lot of evidence to show how founder led businesses tend to thump the returns of other businesses.
However, the fundamentals of investing still apply, as it's no use buying a founder-led business with no revenue or profits. So let's take a look at six quality founder-led businesses to consider.
ResMed Inc. (ASX: RMD) hit a recored high yesterday and its founding family including CEO Mick Farrell have grown the sleep treatment businesses into a $23.3 billion giant. It's also planning for the long-term by investing heavily in the digital health and software space. The stock is up around 220% in 5 years.
Dicker Data Ltd (ASX: DDR) is led by David Dicker and his ex-wife Fiona Brown, with the founder & CEO reportedly refusing to accept a salary to just live of the dividends provided by his major shareholding in the company. Dicker Data also recently granted every single staff member a $1,o00 worth of shares and its own chief operating officer has been heavily buying the stock on market. I would not be surprised if it performs well in the years ahead.
ARB Corporation Limited (ASX: ARB) is a 4-wheel drive parts supplier founder in 1975 by Tony Brown. It has a superb long term track record of revenue, profit and dividend growth. It has no net debt and Tony Brown's brother Roger Brown is now chairman of the business having been influential in running it over the long term. The stock is up about 45% in 5 years.
Twilio Inc. is a NASDAQ-listed tech business led by its founder Geoff Lawson. It has grown into a US$10 billion business in just over 10 years of existence thanks to its ability to profit from the growing trend of business-to-consumer communication via mobile phone. The stock has roughly quadrupled since its 2016 IPO.
Magellan Financial Group Ltd (ASX: MFG) is led by its founder Hamish Douglass and this gives it a serious advantage as a fund manager in terms of controlling recruitment and costs. A lot of fund managers end up overstaffed with little focus on business performance, compared to investment performance. This is not an issue at Magellan and its hows in a share price up 150% in 5 years.
