Why do family controlled public companies outperform?

[Luke]

Interesting article by UBS, thought its nice to share and an interesting element to keep in mind when investing.

ubs-why-do-family-controlled-public-companies-outperform.pdf

[Spekulatius]

@Luca I wonder if UBS cherry picked the companies or the data. There are many family controlled companies that underperform and those are worse than publicy traded cos that underperform, because it is typically impossible to make changes even with an activist.

 

In Germany Draegerwerke come to my mind. Draegerwerke is in great market (Safety, medical etc) so one would think they should be able to perform, yet they are losing money currently. KSB is another one, but they have been doing better lately.

[Luke]

13 minutes ago, Spekulatius said:

@Luca I wonder if UBS cherry picked the companies or the data. There are many family controlled companies that underperform and those are worse than publicy traded cos that underperform, because it is typically impossible to make changes even with an activist.

 

In Germany Draegerwerke come to my mind. Draegerwerke is in great market (Safety, medical etc) so one would think they should be able to perform, yet they are losing money currently. KSB is another one, but they have been doing better lately.

Interesting, yeah i cant tell. UBS seems to have done quite the analysis on relevant literature but i couldnt refute what you say, complex topic. 

 

There are also interesting stock picks in the PDF.

Edited June 1, 2023 by Luca

[Spekulatius]

Keep in mind that the paper is from 2015 and quite a few family controlled companies mentioned there have underperformed. Groupe Bruxelle Lambert was one I was invested in that comes to my mind. I actually think they have done OK in terms of capital allocation since then. Tessenderlo (not metnioned by discussed here) is another one that screwed owners, but they are smart operators. Might be interesting. We all know about Porsche Holding.

 

Germany, Belgium, France and Italy have tons of family controlled business and my bet is as a group they have underperformed - not sure about European stock market but for sure the US stock market.

 

I guess you just have to pick the right family.

Edited June 1, 2023 by Spekulatius

[Castanza]

The biggest danger to family run businesses, is a son with coke or booze addiction. 

[sleepydragon]

1 hour ago, Spekulatius said:

@Luca I wonder if UBS cherry picked the companies or the data. There are many family controlled companies that underperform and those are worse than publicy traded cos that underperform, because it is typically impossible to make changes even with an activist.

 

In Germany Draegerwerke come to my mind. Draegerwerke is in great market (Safety, medical etc) so one would think they should be able to perform, yet they are losing money currently. KSB is another one, but they have been doing better lately.

seemed cherry picking to me. They didn’t even mention 0001.HK, the biggest company listed in Hong Kong.

[Saluki]

2 hours ago, Castanza said:

The biggest danger to family run businesses, is a son with coke or booze addiction. 

 

I think that's why Peter Lynch advised to find a company so good that an idiot could run it because eventually one will. 

 

The Busch family had a lot of drunks and several dead bodies (but no prosecutions) before the business was sold to InBev.

 

https://www.nbcnews.com/id/wbna40806859

 

 

[Castanza]

2 minutes ago, Saluki said:

 

I think that's why Peter Lynch advised to find a company so good that an idiot could run it because eventually one will. 

 

The Busch family had a lot of drunks and several dead bodies (but no prosecutions) before the business was sold to InBev.

 

https://www.nbcnews.com/id/wbna40806859

 

 

 

TSN is on my watchlist for the above reasons. Got some bad press a few months back and picked up a few shares ( half a percent...but still kinda wish I didn't). That and the mediocre/poor results have dragged this down pretty hard. 

[Luke]

Exor has a fund where they invest their money into 50 family controlled companies because of possibe outperformance, so they must think so too. I have that from an earnings call from last year or so!

[Luke]

1 hour ago, Saluki said:

 

I think that's why Peter Lynch advised to find a company so good that an idiot could run it because eventually one will. 

 

The Busch family had a lot of drunks and several dead bodies (but no prosecutions) before the business was sold to InBev.

 

https://www.nbcnews.com/id/wbna40806859

 

 

Yeah, thats what worries me with semiconductor companies, you need a really competent Team in order to run these businesses well and maintain competitive advantages. 

Edited June 1, 2023 by Luca

[Gregmal]

The answer is obvious. They have skin in the game. FIZZ is one of my favorite examples of this. 
 

As to cherry picking, wtf? Isn’t that the entire name of the game lol? There’s very lucrative, well run, family controlled businesses out there. Is this not true because we want to be lazy and just include every single one to exist so we can draw a blanket conclusion? I don’t get it. If you are a good investor you exist to cherry pick. 
 

Meanwhile what do Disney, Bud, and Target have in common? People with no skin in the game who certainly aren’t worried about making money.

 

 

Edit: Actually wow just looked and was surprised to see Bud does still have heavy family related ownership. So chuck that one out.  What morons 

Edited June 1, 2023 by Gregmal

[Castanza]

1 hour ago, Gregmal said:

The answer is obvious. They have skin in the game. FIZZ is one of my favorite examples of this. 
 

As to cherry picking, wtf? Isn’t that the entire name of the game lol? There’s very lucrative, well run, family controlled businesses out there. Is this not true because we want to be lazy and just include every single one to exist so we can draw a blanket conclusion? I don’t get it. If you are a good investor you exist to cherry pick. 
 

Meanwhile what do Disney, Bud, and Target have in common? People with no skin in the game who certainly aren’t worried about making money.

 

 

Edit: Actually wow just looked and was surprised to see Bud does still have heavy family related ownership. So chuck that one out.  What morons 

 

Went to Yuengling Brewery in Pottstown a month ago for a tour. The damn CEO Dick Yuengling was there driving a forklift, sweeping floors, and talking to the patrons. Shook my hand and said thanks for coming out. Dude is 80 years old and worth what a cool billion? That's skin in the game. The boycott didn't work out so well for the libs in 2016 <---telling 

[jks327]

This is often the case but can go the other way as well, thinking of what happened with R.P. Scherer when the daughter sued to oust her husband as CEO.