The Motley Fool is out with yet another “upgrade” portfolio service in their Discovery series… this time, Tom Gardner and the gang are flogging The Ownership Portfolio, a service that aims to recommend the best founder-led stocks in an attempt to find their next Tobi Lütke, Reed Hastings or Jeff Bezos. As with most of these kinds of “upgrade” services, it’s pricey ($1,999, “on sale” for $1,799) and they do not offer refunds — so caveat emptor.
They do, however, hint at a few of the stocks they’ll be recommending in the service… so we can sniff through those clues for you and get you started on your thinking — and for that, you don’t even have to pull out your credit card, just give me a few minutes of your time so we can get the Thinkolator cooking on these clues…
Here’s how the pitch starts, to give you some context:
“After helping a select group of Motley Fool members like you achieve record-breaking 165% returns in just two years’ time…
“Tom Gardner is inviting YOU to follow along – trade for trade – as he builds a BRAND-NEW portfolio of founder-led stocks with 500% upside potential…”
That two-year return comes from what they called The Partnership Portfolio, which apparently was another high-end service that picked some stocks that have done exceptionally well recently — founder-led stocks like Shopify (SHOP), Zoom Video (ZM) and Okta (OKTA), which have also been dramatic beneficiaries, it turns out, of the COVID-19 pandemic. They were doing fine and probably beating the market nicely before that, of course, but this year’s topsy-turvy market has really spurred that outperformance.
The basic point is that the Motley Fool has, when you go back through their results from Stock Advisor and other services, apparently done best when picking founder-led companies. And Tom Gardner thinks that will continue, with his next crop ready to be announced as a new portfolio. More from the ad:
“… even though Tom Gardner has been pounding the table for market-crushing, founder-led stocks like Amazon, Baidu, Netflix, and MercadoLibre for years, we know from our hundreds of discussions with loyal Motley Fool members that many of you are still missing out on these returns.
“He also believes the small group of founder-CEOs he’s identified for The Ownership Portfolio could represent the next round of founder-led companies, with the potential to produce returns of +1,000%, +5,000%, and even +10,000%.”
There’s a certain logic to all of this, of course — it makes sense that strong management makes for a better company… and companies that are still founder-led, with the founder owning a large stake, are perhaps more likely than average to be relatively young companies that are growing fast, in exciting industries. That’s certainly what has led the market in recent years.
And the Fool ad also backs this up with reference to a Bain & Co. study that indicated founder-led companies generated “3X the wealth” of “other companies” from 1990-2014. If you’re curious about that research, Bain published in in the Harvard Business Review back in 2016. That’s an interesting article, worth a look as it tries to identify what makes founder-led companies stand out (like a push to change industry norms, an obsession with the “front line”, and the transmission to lower-level employees of an “owners’s mindset”). Here’s a little excerpt:
“We found that the companies most successful at maintaining profitable growth over the long term were disproportionately companies where the founder was still running the business (such as Oracle, Haier, or LBrands), was still involved on the Board of Directors (like Four Seasons Hotels and Resorts), or, most importantly, where the focus and principles of how to operate that the founder had originally put in place still endured (as at IKEA or at Enterprise Rent-A-Car)….
“Our research shows that companies that maintain the founder’s mentality as they age are four to five times more likely to be top quartile performers. For instance, an index of S&P 500 companies in which the founder is still deeply involved performed 3.1 times better than the rest over the past 15 years.”
Whether that will be true for the next generation, I don’t know… but it does make sense. We also risk falling into the trap of the “cult CEO” if we fall too far into this idea, so it’s important to be mindful of that — there are plenty of disastrous companies that thrived on strong-sounding founders who told a great story and built something shiny and new, from Ken Lay at Enron (which, lest we forget, was named “America’s Most Innovative Company” for six years in a row before the wheels fell off the bus and their criminal accounting came to light), to Adam Neu