Ford explains that the ship is using a “Somebody Else’s Problem field generator.” Essentially, the device makes people think the spaceship isn’t their concern — effectively rendering it invisible. Ford and Arthur can see it because they know what they’re looking for…while the crowd remains completely oblivious.

That’s how I feel sometimes when sifting through the big financial news sources. The pages and airwaves have stories loaded with opportunities, but few people seem to be paying attention. Investors see headlines but assume they’re someone else’s problem…letting thousands — even millions — of dollars in potential profits slip by.

Of course, it’s a little more complicated than just reading the news. Finding the next trends means connecting the dots…following stories to their logical conclusions.

Consider the first trend I see ahead…

The Hunt for Effective Leadership

It seems each week there’s a story about a change in leadership at one big company or another. Sometimes it’s just time for a new person to take the helm, like Delta Air Lines’ Richard Anderson, who took over for the retiring Gerald Grinstein. Or sometimes it’s a question of performance, like when Paul Pressler stepped down as head of The Gap. But more and more often, there’s a scandal involved. Among the more colorful examples of late is the tale of Gregory Reyes, former CEO of Brocade Communications. In August 2007, he was convicted of securities fraud, among other charges.

I expect several more stories like this to come to light in the next few months. And with them, a new trend will emerge. Investors will demand companies hire reputable, upfront CEOs. They’ll also flock to companies that already have proven management teams in place.

Bruce Berkowitz, manager of the Fairholme Fund (one of my favorites) sums it up nicely:

“We tend to be more about the jockey than the horse… You don’t have to predict the future if you know the company has the assets and the management to do well in difficult times. I believe that’s when the seeds for exceptional performance are planted.”

The basic idea is that you can make great gains in the stock market by betting on a proven manager, or jockey. If you invested in Berkshire Hathaway knowing nothing except Warren Buffett’s track record — that would be an extreme case of betting the jockey.

Obviously, if you have a great jockey on an old nag ready for the glue factory, there is only so much anybody can do. So if you can find a nice pile of assets and couple that with a great jockey, then you can have something special.

Until next time,
Chris Mayer

October 23, 2008

P.S.: That’s why I really like this company I’m going to tell you about. It has an interesting mix of assets and a proven team running the show. And these guys all own a significant percentage of the stock. So again, they are right in the fire with you.

The Wrong Jockey Can Leave Your Stocks Sitting in the Gate was originally featured in the Penny Sleuth.