For good stock market bets, some top investors can't be too
bothered by details like corporate profits: instead, they pick companies run by
their founders. Four of the top six performing companies on Nasdaq over the
past five years as of Oct. 29 are run by founders.
In fact, one-third of the 50 top performing Nasdaq companies
are run by founders. So while stock drops at founder-run darlings such as John
Mackey's Whole Foods Market Inc, down 31 percent this year, and Jonathan
Bush's Athenahealth Inc, down 9 percent, have raised questions about
whether fund managers will lose patience with strategies that show little or no
profit, several with long-term records of success say they won't bail out.
Hedge fund manager Whitney Tilson's Kase Capital made eight
times its money by sticking with its big bet on Netflix even as other investors
doubted the company.
Bezos is Exhibit A for challenging a Wall Street mindset
that chases earnings-per-share estimates by the penny each quarter. And more
chief executives are being encouraged to think like Bezos. One big supporter is BlackRock
Inc Chief Larry Fink, who has challenged executives to invest in their
operations instead of spending money on stock buybacks.
Ted Zoller, director of the University of North Carolina's
Center for Entrepreneurial Studies, said that while companies run by
professional CEOs are a good bet for the immediate future, a better longer-term
bet is on founding managers.
Gavin Baker, who runs the $12 billion Fidelity OTC Portfolio
agrees. His fund is beating 98 percent of his peers this year with a 14.07
return from a portfolio stuffed with founder-run companies. The fund's 5-year
annualized return of 20.25 percent is also beating 98 percent of peers,
according to Morningstar Inc.
TREND EPICENTER
Baker said investors have to make the right calls on where
companies are in their lifecycle. If founders can still hit home runs, they get
more leeway. But if a company is operating in a more mature market, it makes
sense for its leader to do more shareholder friendly moves, such as boosting
the dividend or buying back stock.
Several fund managers said Apple Inc is an example of a
company that's crossing the bridge to being more mature and more shareholder
friendly. That's in sharp contrast to when late founder Steve Jobs'
go-for-broke mentality got him fired before he was brought back and resurrected
the company.
To be sure, this year's woes at Amazon are weighing down the
performance of a number of large-cap mutual funds. It's one reason why Fidelity
Contrafund's advance this year is lagging the benchmark S&P 500 Index by
3.32 percentage points. That has put Contrafund's portfolio manager Will Danoff
in the unfamiliar position of being a middle-of-the pack performer amongst his
peers.
But Amazon remains a top holding in the $110 billion
Fidelity Contrafund, which held a stake worth $1.5 billion at the end of
September.
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