Narratives Do Not Build Great Companies. Great CEOs Do.
It is easy to get lost in the macro news of the day as the U.S. Treasury (fiscal policy) and the Fed (monetary policy) have sucked all the air out of the room. Yet, it is critical to not lose sight of the fact that narratives do not build great companies. Great CEOs do.
Treasury (the financing arm of Congress) has embarked on an enormous debt-funded stimulus program that began in April 2020 and has barely slowed. As a result, the U.S. will likely suffer a fiscal deficit in excess of $2 trillion for the year-ended September 30th 2024.
The news of the day is speculation around whether the Fed will lower its Fed Funds rate by 25 BPS or 50 BPS later this week. Our view is that we would like to see the Fed allow its discount rate to float with the market and to instead focus its efforts on managing a stable, flattish money supply. Yet, let us not lose sight of the companies that underpin the equity and fixed income markets.
While the markets are full of random events, there is one variable that determines the operating performance of a company more than any other variable. That variable is the CEO of each public company.
There is a reason why NVIDIA (NVDA), led by founder & CEO Jensen Huang has excelled while Intel (INTC), led by a series of consecutive non-founders has languished.
There is a reason why OpenAI (led by co-founder and CEO Sam Altman) has innovated while Google (GOOGL) (led by non-founder CEO Sundar Pichai) was late to the Gen AI party.
There is a reason why Andy Florance (founder and CEO of CoStar, CSGP) leads a dominant company in a multi-trillion dollar asset class while Bloomberg was asleep at the switch (Bloomberg met with CSGP some 20+ years ago and should have pushed to acquire the company).
There is a reason why Jeff Sprecher’s ICE (ICE) re-imagined the business of exchanges (financial assets and commodities), while the incumbents were slow to embrace Technology.
Narratives do not build great companies. Great CEOs do.