By Samuel Taube
Transcript:
Samuel Taube: Joining us today is Rachel Gearhart. She’s the Managing Editor of The Oxford Income Letter and Wealthy Retirement, and you might recognize her work from The Oxford Insight. Rachel, thank you for joining us.
Rachel Gearhart: Thanks for having me, Sam.
ST: Today, we’re talking about founder-run companies and how their stock performance differs from that of most companies.
So let’s start with a really simple question: In business terms, how do founder-run companies differ from other companies? And is there a significant difference in stock performance?
RG: Great question, Sam. As the name suggests, founder-run companies are run by management teams that have “skin in the game.” This means a substantial portion of their wealth is tied up in the companies they run.
Studies have shown that over the past 25 years, companies run by founders or their families have outperformed the S&P by more than 300%.
Our Research Team has been digging into this further, and we’ve found that these companies can return up to 1,791% more than the broader market.
So, to put that in perspective, a $5,000 investment in regular stocks will become $7,800. Companies whose management teams have some skin in the game will turn that $5,000 into $52,950.
ST: Oh OK, that’s a really significant difference. So how many of these founder-run companies are there? And can you give us one or two examples?
RG: Sure. Of the 505 companies on the S&P 500, only 27 of them are run by founders. In other words, 5% of companies are founder-run, yet they trounce the broader market with triple- and quadruple-digit gains.
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Texas Energy Holdings is a great example. Chad Willis was only 23 years old when he started the company. Willis’ sister, Karah Boyd, joined the company when she was only 18.
I don’t know what you were doing when you were 18… I certainly wasn’t on the management team of a multimillion-dollar oil and gas company! But clearly, their youth didn’t hurt them…
The company’s revenue jumped from $5 million in 2006 to $44.1 million in 2009. And through November and December, Texas Energy soared 142%.
Wynn Resorts (Nasdaq: WYNN) is another good example. The company’s namesake, Steve Wynn, has been at the helm of the company since he founded it in 2002. He was the former chairman of Mirage Resorts, and he clearly put his industry experience to work quickly with Wynn Resorts.
The company jumped 769% in a little over two years.
ST: I see. Those are compelling examples.
As you know, we’ve previously covered the subject of insider buying and selling a lot – and how that can be a predictor of stock performance. Would you say that founder ownership has a similar effect? And if it not, how is it different?
RG: Absolutely. Founders are the ultimate insiders of a company.
Chief Income Strategist Marc Lichtenfeld recently discussed this in a Wealthy Retirement article.
Truth is, no one cares more about their business or their shareholders than the founder of a company. After all, the founder and their family are usually large shareholders, …read more
Source:: Investment You
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