For the first time in 108 years, the Chicago Cubs are World Champions. Their stunning victory over the Cleveland Indians in game 7 will likely go down as one of the greatest games in baseball history, and it has certainly captivated the city of Chicago in the process as well.
But after decades of futility, how did the Cubs finally pull it off?
Really, it starts with management. The hiring of Theo Epstein, the man who helped break the Red Sox curse, proved to be a transformational decision for the franchise. Theo brought a long-term vision to the team, and embraced the idea of building for the future, even if it was going to cause short-term pain.
The moves that he made over the last few years, be it draft picks, trades, or signings, all led to this moment in Cubs history. Sure, it resulted in a couple of subpar seasons a few years ago, but with a World Series title and a young nucleus of players, it is hard to argue with this strategy now.
So, what does this have to do with investing?
I think the same principles that brought the Cubs their first title in more than a century can be used in a personal investing strategy as well. You need to find your ‘Theo’ and bet on a CEO with an overarching strategy that is built for long term success. Additionally, you can’t let a sluggish quarter or two bog you down, especially if that weakness is in an effort to build strength for the future.
There are several great examples of this strategy right now in the investing world, and it is arguably why these companies have been able to do so well and win while their peers have not. It is also why the stocks below could be set up for great long term success in the future as well:
Amazon (AMZN )
When you think about long-term vision, it is hard to find someone with bigger plans than Jeff Bezos of Amazon. What started off as selling books as now become the go-to marketplace for many Americans, in addition to a media hub and a quickly-growing internet of things giant with a significant cloud presence as well.
Bezos didn’t do this by thinking quarter to quarter, but instead year to year and even further beyond. Amazon famously didn’t turn a profit until recently, but no one questions Bezos these days given that the stock has gained more than 250% in the past five years, and it appears well-positioned for the future. This is largely thanks to its impressive showing in the Web Services division as well as the popularity of Amazon Prime, two ideas that weren’t hits right out of the gate but are now staples for the company.
Once again though, this goes back to having a long-term focus and the willingness to sacrifice a penny or two in profit per share now, for long term dominance in the future. A great Bezos quote below really sums up this line of thinking and why you need to focus on the stable aspects of a business and improving those for success.
“I very frequently get the question: ‘What’s going to change in the next 10 years?’ And that is a very interesting question; it’s a very common one. I almost never get the question: ‘What’s not going to change in the next 10 years?’ And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time. … [I]n our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection. It’s impossible to imagine a future 10 years from now where a customer comes up and says, ‘Jeff I love Amazon; I just wish the prices were a little higher,’ [or] ‘I love Amazon; I just wish you’d deliver a little more slowly.’ Impossible. And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.”
Microsoft (MSFT)
Sometimes, a solid business gets stuck in the mud and it needs a transformative person to turn things around. You can definitely argue that this is what happened to Microsoft in the last decade, as the company saw a floundering stock price and was more-or-less without direction.
But Satya Nadella has changed all that in a few short years (sound familiar?), turning around a once-stodgy Microsoft into a cutting-edge company that is at the forefront of the cloud and other burgeoning industries. This approach has certainly paid off from an investment perspective too, as shares of MSFT are up over 55% since he was appointed CEO in early 2014, easily crushing the S&P 500 in the time frame.
Berkshire Hathaway (BRK.B)
When you talk about the phrase ‘long-term investing’ the conversation has to include Warren Buffett. The Oracle of Omaha has built a failing textile business into a global behemoth and S&P 500 component over a matter of decades. He did this by purchasing great companies on the cheap, finding the undervalued players in the market and signing them to long-term contracts.
And arguably the most important part of the process is the ultra-long-term nature of these deals. Buffett’s holding period is quite long and he clearly knows that time is a key component for success. Here is a great quote from Warren on the topic:
"Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can't produce a baby in one month by getting nine women pregnant"
Facebook (FB)
When Theo started off for the Cubs, the team lost nearly 200 games in two seasons. This terrible performance ended up being a key component for future success though, as it allowed the team to build for the future by stockpiling draft picks.
I think you can say the same thing about some of Facebook’s recent purchases which may not be profitable or seem wise right now, though they definitely have long term potential. Take Instagram for example. Facebook purchased the company for a billion dollars in 2012 and it is now expected to bring in $ 3.2 billion this year alone. But some were skeptical of the purchase , believing that FB overpaid for the photo-sharing company, such as this quote from the Guardian, "it's hard to imagine how a service that just lets you take a photo of your breakfast, colour it blue and share it could possibly be worth anything."
This sort of thinking which focuses on the short term also applies to the reaction to the company’s most recent earnings report and the reaction to the release. Shares are down following news that the company is going to see a year of ‘aggressive’ investment with a ‘substantial’ increase in expenses, but if you are in it for the long haul this should be welcomed news if anything.
Bottom Line
It isn’t enough to have a solid product; you need a cohesive long-term strategy to truly get you to the next level. So, focus on leadership and the organizations that have a long-term vision to find the real winners, be it in the world of baseball or the world of stocks.
Congrats Cubs!!
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Author is long FB
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