CEO's need to do TWO things:
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1.) Run their operations efficiently
2.) Deploy the cash generated by those operations

When it comes to deploying the cash generated by operations, CEO's have 5 basic choices:
1.) Investing in existing operations
2.) Acquiring other businesses
3.) Issuing dividends
4.) Paying down debt
5.) Repurchasing stock

How well the CEO decides on those 5 choices determines how good of a CEO he/she is. Capital allocation is the most important job for a CEO - and it directly impacts the share price of the company. What counts in the long run is the increase of per share value of the company - not overall growth or size of the company.

The best CEO's think like investors as opposed to managers - they care about the increase of per share value of the company. They run the company as if it was the only asset within their family for the next 100 years. Generally, founders of companies tend to be the ones who give the company this special care - as if the company was their baby. As in they would die for their baby. And with that mindset, they generally make the right choice when deploying capital.

A good example would be the ability to identify when, on the rare occasion, they see a discrepancy between value and price, and buy the stock of the company in large quantities.

So we want CEO's who are founders of the company. And we want those CEO's to have a large amount of skin in the game by owning massive quantities of the company stock. These two traits (founder and share owner) are easily identifiable on any financial website. It gives a great filter in selecting what companies we want to invest in. For the most part we do not invest in a company unless there is an identifiable Owner/Operator - which roughly translates to a CEO or Chairman who is the company founder, who owns a lot of the company stock.

Additionally, we avoid any companies where we believe the CEO is following the "Institutional Imperative." This is a mysterious force - the corporate equivalent of teenage peer pressure - which compels CEO's to imitate the actions of their peers and of societal norms. One filter to help determine if a CEO is under the institutional imperative spell is...where the company HQ is.

If the company HQ is located in a city which is in vogue, where many other companies are located, we do not invest in them. These would include NYC, Chicago, L.A., and London.

We believe that if a CEO chooses one of these cities as HQ that it is a possible indicator that they follow the institutional imperative. It is a possible indicator that they do not think for themselves. That they are worried about what others think of them. And thus they are insecure, unimaginative, and most likely a poor CEO.

Poor CEO's do not create companies that 100x the per share value.


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