Please note that Dr. Shulman is a principal in several investment advisory companies, both SEC-registered and private. In this capacity Dr. Shulman advises SEC-registered mutual funds as well as private funds and private accounts which may currently, or may in the future, hold, buy or sell securities mentioned in this publication. Also, any such securities may have been held or sold in the past. Investment necessarily involves risk and investors should consult a qualified investment professional who is aware of their financial situation before implementing any financial strategy or investing in any security discussed. This communication is for information only and is not an offer or advertisement of any services, security or strategy.
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As most investors know, 2013 was a banner year. Leading indices such as the S&P and Russell had stellar returns. But true to historical patterns, a basket of publicly traded “Entrepreneurial” companies did even better. How much better? A US All Cap composite generated more than 45% and a US Large Cap composite of entrepreneurs soared above 55%. Benchmarked against the S&P 500’s 32%, this was a significant out performance by any standard. How could this be?
Outstanding gains from iconic companies such as Tesla (344%) and Netflix (298%) led the way, but other entrepreneurial companies such as 3D systems (161%), Groupon (142%) and Splunk (137%) also contributed gains. Even Facebook (105%) and Blackstone (102%) joined the party.
What makes these companies so impressive? It generally starts at the top. Entrepreneurs build strong, loyal teams and create incentives to grow organically. They also tend to keep their costs lean (relative to competitors) and remain focused on long-term wealth generation. But owner-managers provide no guarantee for success. Brazil’s Mineracao Metalicos (-86%), driven by fallen billionaire Eike Batista, lost virtually everything in 2013. Other investor tragedies such as gold producer Endeavour Mining Corporation (-77%) provide caution for any investor seeking easy fortune, particularly in emerging markets.
So, should investors seek publicly traded entrepreneurial companies in 2014? Maybe… If you think the markets will continue to rise then entrepreneurial companies tend to perform better in strong markets. But they typically provide little risk protection in weak ones. Best advice? Spread your money across a portfolio of companies with leaders who run the companies as if it is their own money. Our research shows this strategy often works over an extended period of time.