We're sharing this edition of Private Briefing with you because it contains some of Bill's best insight into what turns good companies into great ones – and how you can profit from them. Bill's readers profit from analysis like this all the time…
During the 30 years I've spent as a business journalist and financial columnist, I've developed a long list of personal axioms that have helped me identify "Best of Breed" investments.
These axioms touch on such topic areas as finance, marketing, intellectual property, and even competitive threats. But some of the most important of my personal investment aphorisms have to do with leadership and a company's management team.
And leadership starts with the CEO.
As one of my precepts holds, "A good CEO can create a very strong company. But a great CEO can create an empire."
Just like these…
Build an Empire of Profits
Welch had already been with GE for two decades prior to becoming the head honcho and had a well-earned reputation as a maverick.
When he took over as chairman and CEO in 1981, he inherited a moribund industrial company with a stultifying bureaucracy, an oversized workforce, and many laggard businesses. One of his edicts stated that every GE business had to be either No. 1 or No. 2 in its respective market; those that couldn't meet this requirement would be sold, broken up, or shut down.
In the years to come, Welch restructured GE's business holdings, bought some businesses and sold others, and carved out unneeded layers of management. He also slashed business-unit work forces while leaving the underlying business alone – a corporate version of the "Neutron Bomb" invention of the time. The parallels earned Welch his "Neutron Jack" sobriquet, a nickname he was said to despise.
Welch's results ultimately silenced any critics: During his tenure at GE, the company's value rose 4,000%. His retirement came with a severance of $417 million – the largest in history. And GE hasn't been the same company since.
As I've mentioned in past Private Briefing columns, I had the opportunity to interview Welch. And I followed his career – and results – with a deep interest. And when I related this story to a colleague a week or so ago, it served as a bit of inspiration… giving me an idea of something we could do here – for you.
It's something I believe will put some real money in your pocket.
So let's take a look …
An Intriguing Conversation…
A week or so ago, I related this story about Welch to Radical Technology Profits Editor Michael Robinson. Like me, he had an earlier career as a journalist, so we were quickly in synch in analyzing the importance of leadership.
Wanting to capitalize on Michael's tech-sector expertise, I ended up issuing a bit of a challenge.
"We see the long-term gains that Welch was able to generate for his shareholders," I told Michael. "So, what if we turn our attention to the tech sector – your bailiwick – and 'handicap' the five CEOs that we'd want to take the same kind of long-term trip with? A lot of these companies have probably enjoyed some pretty dramatic gains already. But those are the 'trees'… and we can't lose sight of the reality that the kind of long-term returns that Welch generated for GE shareholders are actually the 'forest.' I'm betting that if we use your insights into the global tech sector, we could identify the 'Neutron Jacks' of the digital world – folks with vision and the ability to create a venture that can evolve, adapt, and grow with the changes technology brings."
I could tell that Michael was locked in on what I was saying, because he immediately added: "And the great thing, Bill, is that – with GE, as great as it was at the time – you're still talking about an industrial company. Here we'll be talking about tech firms. And, for that reason alone, you'd have to think that, over the same long-haul period, the returns that we'll be talking about will be much, much more than were realized by Welch."
Three final thoughts: First, we decided to handicap five CEOs instead of just one in the interest of diversification… not every one of these will play all the way out. And, second, we chose established CEOs – those with a track record already. A startup might generate stratospheric returns, but that wasn't the point of this exercise. Finally, we wanted to do this now, reasoning that any kind of an extended sell-off might give you the chance to establish positions in these stocks at even lower prices than they're trading at today.
The breakdown I present now is the result of a lot of legwork by Michael – with a few contributions from me…
Top Tech CEO No. 1
Elon Musk, of Tesla Motors
Best known as a co-founder of electric-vehicle (EV) firm Tesla Motors Inc. (Nasdaq: TSLA), Musk showed a burning desire to turn his technical talents into money very early in life.
Raised in his native South Africa and later in Canada, Musk learned computer programming at age 12. Working by himself, he programmed a video game that he then sold for $500.
Peanuts, to be sure, but the experience was an inspiration to Musk – an epiphany, in fact, that high-tech was the pathway to success – and wealth.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.