Find the Visionary CEO Before You Invest

Some of the smartest investments come from spotting the visionary chief executive officer, who turns his company and its stock into gold. But how do you identify such a CEO – and before the person has time to perform that sweet magic?

As an investor, it is crucial to find companies with great leadership. There are very few leaders of businesses where you can make a $1,000 investment, and 10 or 15 years later, the initial capital turns into $100,000 or $1 million. Think of broadcaster Tom Murphy, cable pioneer John Malone, mega-investor Warren Buffett, Starbucks founder Howard Schultz, casino magnates Steve Wynn and Sheldon Adelson, plus a small number of others.

There are assessments galore of the traits that a visionary CEO possesses. For instance, corporate public relations expert Paula Phelan lists five characteristics: 1) having a vision and communicating it to the world, 2) staying on top of operational details but delegating the distracting nitty-gritty work to subordinates, 3) keeping abreast of industry trends, 4) having a strong management team and backing them and 5) being aware of customer wants and needs.

Another aspect of the great ones is an ability to overcome obstacles. For example, Tom Murphy started out managing one television station, and had no broadcasting experience. But his financial prudence and acquisitive instincts built that one holding into an empire. He eventually expanded the operation into what became the Capital Cities chain, which eventually bought ABC. In the 1990s, he sold the enterprise to Disney.

In addition, visionary CEOs must do many things at once. Buffett is best known for his stock investing. His Berkshire Hathaway, however, also is a highly successful conglomerate, which controls assets ranging from the BNSF freight railroad (formerly Burlington Northern) to insurer GEICO. His gift is to sniff out value and find good managers to run his subsidiaries.

Above all, visionary CEOs need to think big, even though they begin small. Malone started out at what became Tele-Communications Inc., a cable outfit with $20 million in revenue and $100 million in debt. He turned TCI into the largest cable company in the United States through a blizzard of deals and complicated financings. Today, he leads Liberty Media, which has interests in a number of properties such as Sirius XM radio.

Who are today’s comers?

In April, I visited New York in the search of one. The visionary CEO I sought must have the ability to analyze and understand businesses that are worth buying – those with untapped potential that new leadership and capital investment can transform into cash-generating machines. Another necessary skill on my checklist: knowing how to win over the owners of potential acquisitions, in many cases a difficult task as those owners probably do not need money.

Sardar Biglari owns a holding company modeled after his hero Buffett’s Berkshire Hathaway, albeit on a smaller scale. A one-time hedge fund operator, Biglari, who is only 36, takes a confrontational approach more reminiscent of Carl Icahn, as he seeks to take over what he sees as underperforming companies.

Biglari, the son of refugees from Iran, started out with a small restaurant chain called Western Sizzlin and used it as a platform to assumed control of the Friendly’s Ice Cream business (since sold) and the 500-store Steak ‘n Shake. He turned around Steak ‘n Shake, and went on to buy the Maxim magazine company, First Guard Insurance and others. His attempt failed to take over Cracker Barrel, the restaurant and gift store company.

I sat in on the annual meeting of publicly held Biglari Holdings (BH), which lasted four hours and was certainly worth my time. Its CEO is incredibly direct, and some might see him as arrogant, almost offensively so. He called one shareholder a “schmuck,” He also called the board of a target company “Chihuahuas.”

Yet, at the same time, I saw was an individual who had vision, who does his homework on what interests him, and very much understands the different businesses he owns or covets. He is also a guy who has proved himself to be a very good investor, capital allocator and manager.

On the operational side, he inherited very tough positions and did a great job of turning around two fast food companies, not exactly easy businesses. All in all, when weighing the positives and negatives, not only do I think his entity is well worth owning but if it gets cheaper, probably is worth buying more. In the last four years, the stock has more than doubled.

Do I think Biglari is the next Warren Buffett? No, but nobody is. But if he can make his $760 million (market capitalization) company into something more substantial, like one worth $20 billion, believe me, my trip to New York was well worth it. Because I’ll have found a visionary CEO.

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Written by Yale Bock, CFA, who is the owner and operator of YH&C Investments in Las Vegas.

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