The Daily Dose: Behind the Numbers

 | Jan 13, 2014 | 12:00 PM EST  | Comments
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Stock quotes in this article:

csco

,

shld

,

sbux

,

cmg

"If you are not consistently learning, you are dying each day" is a motto of my own creation that I hold dear. Doing the same thing in investing, and in life, is a surefire ticket to stagnation. For life, stagnation means being stuck in a dead-end job for years because of a fear to take risks. For investing, means continuing to follow principles and tactics that are either outdated or in bad need of tweaking.

What I seek to learn is the human stories behind the companies I recommend (or don't recommend) to clients of my firm Belus Capital Advisors. Granted, you will probably not obtain access in the manner that I have developed for clients, for example a report following a chat with Cisco's (CSCO) vice president of Americas. Why? Because his PR person won't even return your email or call. Hey, just being real to start 2014.

So allow me to share today some of the attributes of the winning companies that I am studying, which, to me, ultimately appear in these external forms:

  1. Higher-than-industry-average sales and earnings growth rates.
  2. No viral stories on neglect or lack of care for lower-level employees responsible for carrying out a mission statement.
  3. Everyone in the company, top down, strives to deliver to the values ingrained in the brand's DNA.

Winning Culture: You will often hear about it being necessary to empower employees in any run-of-the-mill Management 101 textbook. But it's entirely different to have a majority of employees buy into the hype conveyed by better-paid executives. If you were to conduct a screen of high-growth companies and watch videos of their CEOs or executive teams, I bet there would be apparent distinguishing characteristics. For example, Howard Schultz at Starbucks (SBUX) and Monty Moran at Chipotle (CMG) ooze inspiration and confidence that is infectious. Eddie Lampert at Sears Holdings (SHLD) hides behind 8-K comments and blogs, while destroying two iconic companies. Starbucks and Chipotle win, while Sears Holdings heads towards extinction. In this type of meh growth climate for the U.S., for a company to outperform on its financial goals, it has to have a worker base that is checked in at the office after hours and relentless while on duty. Workers have to rise above their pay grades, and that is done by instilling a winning culture.

Handles Criticism Well: It's a natural response for highly compensated executives with the world at their fingertips to fight back with positivity if their company is under siege. The individual bearing the brunt of the storm likely has logged many hours at the company, crafting strategy to smack down competitors. But how an executive handles criticism provides great insight, I think, into the probability of turning the business around sooner rather than later after an operational misstep. I would view favorably a company with an executive who explicitly details miscues and then charts out specifics on how to improve, as opposed to an executive continuing to champion losing initiatives.

Check your investments carefully; there's more to consider than just cash flow and sales. The people responsible for executing the business model are the ones attracting the company's future financial results.

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