When reading or listening to share market commentary from professional analysts or business commentators you will often hear them talk about the importance they place in 'good' management of a business.
This is common sense as managers are the stewards and controllers of your capital, but of course it's hard to get a good read on the difference between a genuinely good management team and one that just talks a good game.
The best way to make sure you have a 1oo% aligned management team is to buy companies where the founder is still the CEO and still has a significant stake in the business.
After all a founder is more likely to focus about the long-term future of a business and how to grow it successfully than a career CEO who may know almost nothing of a business until taking a job at it.
In fact I could not emphasise enough to 'mum and dad' investors the importance of buying founder-led businesses.
My U.S. share portfolio for example is around 80% weighted to founder-led businesses, with Visa, Match and Apple the only exceptions.
On the ASX it's a little harder to achieve such a weighting assuming you take a sensible approach to risk, but there are still plenty of good founder-led businesses to buy.
Dicker Data Ltd (ASX: DRR) is the IT hardware distribution group run by its founder David Dicker and co-founder Fiona Brown, who between them still own more than two-thirds of the business.
David Dicker firmly believes in shareholder and employee alignment to company performance, recently awarding every staff member a $1,000 of shares in the business. The founder also believes 100% of company profits should be paid out in dividends, which is a policy the company follows.
Dicker doesn't draw a material salary and just lives off the dividends for employment-related income, with the stock more than tripling over the past 5 years when including the big dividend yield that has hovered around 6% recently.
I recently wrote that I'd be reluctant to pay more than $3.60 per share for Dicker Data today, but the market is bidding the stock higher perhaps understandably on the basis of its consistent double-digit profit growth. At $4 I'd rate it a hold.
Magellan Financial Group Ltd (ASX: MFG) is another founder-led business now up nearly 400% including dividends since I first recommended it to readers over the past 5 years nearly. The key point to understand about this business is that its founder-led nature gives it tight control on costs and staffing.
There are other founder-led fund managers on the ASX such as Wilsons, but it doesn't operate in the institutional space putting it at a disadvantage in terms of growth options. I'd still rate Magellan a buy at $36.50.
Twilio Inc. trades on the NASDAQ and is another business I've mentioned over the past couple of years during which the stock is up around 400% from its June 2016 price. Its ebullient founder Jeff Lawson clearly articulated the growth opportunity and has executed well. Revenue growth is through the roof as it benefits from the rising demand for business-to-consumer communication powered by online apps. The stock is at US$130 and I expect will go higher in time. For me it's a buy.
AfterPay Touch Group Ltd (ASX: APT) is the buy-now-pay-later start-up that has grown into $4.9 billion global disruptor. I spoke a couple of times to one of its co-founders when the stock traded around $4, but made a catastrophic blunder in declining to invest a little money.
At $20.50 today I would not be surprised to see the market send the stock higher on the back of its U.S. growth in 2019, but it's not going to smoke out the value investors and I'm sitting on the fence with a hold for now.
