The Outsiders – William Thorndike

The most successful CEOs are those who have delivered the greatest stock market returns relative to their peers and the overall market. In this post, I will present 5 common traits that these CEOs share, so that you know what to look for in your next stock market investment.

Top 5 CEO Traits

1. They are Skilled Investors

  • Must run business efficiently
  • Deploy business capital effectively => more important
  • 5 choices in deploying capital: 1) invest in existing operations, 2) acquire other business, 3) Issuing Dividends, 4) paying down debt, 5) repurchasing stock
  • Most successful CEO focus on 1, 2, and 5

2. They Align Interests with Shareholders

  • CEO is hired by shareholders to benefit shareholders
  • Look for CEO’s that are shareholder oriented
  • Look for: 1) CEO is invested in company, 2) organizational-wide share ownership (CEO + Employee options), 3) willingness to shrink (close unprofitable units), 4) Bonus systems (main compensation)

3. They Decentralize

  • Individual units of their organization don’t have headquarters watching over them
  • Flat hierarchy with as few middle managers as possible
  • Leads to free entrepreneurial energy and greater work autonomy
  • Capital allocation however is centralized

4. They Focus on Cash

  • Focus on long-term cash flow
  • Invented their own metrics

5. They Are Frugal

  • “The goal is not to have the longest train, but to arrive at the station first using the least fuel”
  • Does not lose sight on on driving down operational cost and expenses

Notes

  • Measure of a good CEO is the increase in per share value
  • Outperform the S&P 500 by 20x and peers by 7x