The Golden Knight Factor

Growth-Loving Fools,

Forgive the long post, I don’t have time to cut it, but I think it will be valuable…

Whether or not you’re a sports fan, I implore you to watch the next hockey game between the Las Vegas Golden Knights and the San Jose Sharks. At least, watch the opening rituals. Something truly extraordinary is going on with this team. I promise I’ll tie this to investing.

If you don’t know, the Las Vegas Golden Knights are an expansion team. The way an expansion team forms is the other teams must leave a few players “Unprotected” and the new team is allowed to draft players from those teams to build their roster. Las Vegas built an extraordinary team - they have passion, intensity, charisma, determination. Now remember, all these guys are elite professionals and they’ve been basically let go, betrayed if you will, by their old teams. They have chips on their shoulders. The city has totally embraced them. The marketing is off the charts - one of my all-time favorite logos. The name is perfectly aligned with the excess and grandeur of the team, a clever play on k/nights.

The team has won its first five playoff games. Last night, they ANNIHILATED a rival, the San Jose Sharks, in game one of their playoff series. It was one of the biggest spiritual and physical thrashings I have ever seen. It was 4-0 before the 10 minute mark.

I think this has huge implications for investing.

Here is a link to an article on how the LVGK built this monster…

https://www.usatoday.com/story/sports/nhl/golden-knights/201…

From the beginning, the Vegas Golden Knights placed as much emphasis on character as they did on skill when evaluating players. McPhee and his staff did their homework about players’ personalities and reputations. They had team chemistry in mind each time they made an expansion draft decision. They never lost sight that they were building a team, not creating a list of players. McPhee assembled a team of players who feel they have something to prove because their former teams let them go. That was by design.


I am currently going through all my investments to check for this X-factor, this combination of elite leadership, collective purpose and sense of destiny. By “sense of destiny” I mean there are many times, in sports, when you just plain FEEL that a team is going to win. Our beloved Cubbies had it here in Chicago two years ago.

Among the stocks often discussed here I think I see these qualities in Hubspot, Shopify and Arista. Hubspot is disrupting the very real horror of interruption marketing. Shopify is led by a very competitive guy clearly doing what he loves…

https://www.fool.com/investing/2017/03/27/tobi-lutke-snowboa…

According to his bio he got a computer at age six and was rewriting code by age 12. Now of course we must keep our BS detectors on full blast, but I buy this. It feels credible. And once I am convince the leader of my investment is elite, I am far less likely to get shaken out when the news, inevitably, turns on my stock.


While some may not be convinced the Golden Knight Factor is valuable, one thing I am 110% certain of. Absence of these qualities means your money will get smoked. For example, consider the recent collapse of the HMNY stock. The founder was formerly selling energy drinks. I won’t get into it here but for me, they failed the Golden Knight test miserably. I pulled a trigger too early on DHXM and bought because I thought kids content in a global marketplace with insatiable demand was a no-brainer. Then I realized management had no passion for kids programming, no history and as of this moment the stock is down well over 50% from my exit. They were last seen hiring consultants to tell them how to build a viable strategy! Mind boggling destruction of capital. And since I can’t shut up, consider the NFL’s Bengals franchise which has lost a playoff game after one of their players threw a dirty hit. Forgetting his name now, but he had a long track record of troubles.

Back to the NHL, recently, the Columbus Blue Jackets fell apart and lost 4 games in a row to the Capital. After one loss, coach John Tortorella stormed out of a press conference. He has had a great career, won a cup, but for my taste his temper and theatrics are not ideal. For the old guys here, I always liked Bjorn Borg’s quiet intensity over the theatrics of John McEnroe. I cringe when people say yelling at refs and storming off is a sign of passion. It’s a sign of immaturity and lack of control.

Tortorella Storms Out of Press Conference
https://www.youtube.com/watch?v=aGw_9hQZS2U

To me this looks like a rattled, insecure guy who actually doesn’t have the answers or the strength of character to endure defeat with grace. I could name a trillion examples of this, which is why I love watching sports.


Recently former UFC Straw Weight champ Joanna Jedrzejczyk lost the re-match for the title against an incredibly focused, intense “Thug” Rose Namajunas. Joanna had lost her belt after a first round knock out and in one post fight interview seemed to blame her coach for her diet (or some other excuse.) I saw one analyst say before the re-match she was going to lose because she was not acting like a winner, a leader, a champion. The evidence was right there in that excuse. And sure enough, she lost again. And when she lost again, this time, she insisted she won though she definitely did not win. In fact, watching her post fight interview, with her face covered in bruises and insisting she won was borderline comical. Again, she is a GREAT fighter, and was a great champion. But she has limited her potential by failing to learn lessons, to act like a true leader.


Since OKTA seems to be impressing many people - and probably for good reason, I took the Golden Knight Factor out for a spin. I watched - and re-watched - an interview with Okta’s CEO, Todd McKinnon…

https://www.youtube.com/watch?v=qPmUk7CYZUE

This is purely a first look, and not definitive. And the Golden Knight factor is never meant to be a stand alone metric. But for me, I give this interview a 7 on a 1-10, maybe a B-/C+

He seems very smart, and comes off like a good guy, a straight shooter. But I think I feel nerves here and I don’t leave this especially impressed. I think most of us only need one look at a killer leader to know it. Steve Jobs, Reed Hastings, Elon Musk and Bezos come to mind. I am not negative on McKinnon, just not convinced yet. And of course he may only have to be good if the software is killer. It seems the Chipotle CEO is off to a good start.


Lastly the best work I’ve read on the kind of leaders I admire most and invest in can be found here…

Jim Collins - Level V Leaderhip
https://www.jimcollins.com/concepts/level-five-leadership.ht…

If I could only do a single thing when picking a stock, I’d of course want to look at earnings. But my second choice would be to watch the CEO in action.


Fool On,

BD,
who is proud to say his love letter to Fooldom was read by David Gardner on the recent RB podcast. It’s a bit long (I don’t shut up) and maybe a tad braggy, but I wrote it after realizing April 22 was my EIGHTEENTH anniversary of being a Fool and I just really love, admire, respect and appreciate this community so much. It is the very best of what human beings and the Internet can be. Thank you all x 1000 again for sharing your time, hard work, brains and excellence so generously. It has really made my life and my family’s “fortune” so much richer.

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I don’t follow sports. My parents were immigrants and neither of them understood or followed American sports so I didn’t grow up in a household where spectator sports were considered important or even entertainment.

Given that, I couldn’t agree more that company C level leadership is vitally important. I’ve not spent a lot of time studying the history of business, but I think if one were to review the history of failed companies that once ruled as the captains of their industry most often the reason for failure can be traced directly to poor leadership.

Exogenous factors are important. Sometimes companies fail due to circumstances beyond their control. But even under these conditions I might point out a company by the name of Berkshire Hathaway. Did you ever wonder where the name comes from? It was started in 1889 as a textile manufacturer. Warren Buffett started investing (word of caution, I just realized that “invest” and “incest” are only one slightly displaced keystroke apart) in them in 1962. The rest of the history is available from a number of sources. The point is that a dynamic, intelligent, inspired and inspiring leader saw that the future of textile manufacturing in the US was pretty much doomed and as a result changed the direction of the company.

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err what sport pray are you going on about?
Can we have a little more context for those not American or even living in the US.
I’m happy to consume American sports but it makes it hard to get excited about a match up when I have no idea what you’re even talking about.
Thanks in advance.
Ant

err what sport pray are you going on about?

Its hockey Ant, it’s not an American Sport it was invented in Nova Scotia Canada and was played in iced down horse corrals all across the north. It’s sort of like rugby only with skates, a stick, and helmets. You will hear many people state that I went to a hockey fight and a game broke out.

Andy

BD, what do you make of Ubiquiti and its CEO, Robert Pera? (And to add color to your sports metaphor, he just decided to keep his stake in the Grizzlies.)

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Can we have a little more context for those not American or even living in the US.

Difficult! Football is played with the feet in the rest of the world but in America they play it with their hands on the ball! Confusing!

Denny Schlesinger

Great - I’m on board for some Ice Hockey. Will check it out.

It’s been a while since I enjoyed the Jon Stewart mash up taking the mickey out of the Boston Bruins for diving/embellishment and even longer since I used to admire Gretzky at Edmonton.

Ant
Ps - yep it is an AMERICAN Sport - I meant AMERICA in its broader context than US of A but anyhow that’s cool.

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Hey Ant,

That post was long! I could put it this simply. I love leaders like Liverpool Manager, Jurgen Klopp. Intense, brilliant, accomplished, entertaining, has a killer vision of “heavy metal” football and builds a team of dedicated warriors that fit his style. He practices what he preaches. But the more I read Saul’s posts and the knowledge base, the more I see the insane results Saul is getting, the more I realize it’s really all about the money, money, money. I mean that in the best sense of the word, not cynically. Money, earnings, ability to grow and protect the cash is the thing. If that is happening, everything else is almost certainly taking care of itself. Still, I enjoy my own stylings.

Ed Grey,

Robert Pera seems like an extraordinary individual to me. Two things that I don’t like. Owning a basketball team has got to be a massive distraction. He seems insanely passionate about the team. And I have no clue what’s going on with subpoenas and allegations of fraud. Bezos and Musk have space companies and still run amazing businesses. So of course these geniuses are playing on another level. But for me, when you combine youth, cash, fame, fortune of pro sports, it is a formula for disaster. I think Zuck is one in a million. On first glance, if he was a draft pick I’d say, “massive talent, worry about distraction and his edgy personality getting him into trouble.” I like quiet, intense, kind of boring guys. My ideal guy is Wilmot Reed Hastings.

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Hi Dan

I heard the RBI podcast where your letter was read and I immediately recognized you from the boards. It was a great read. I enjoyed it quite a bit.

Fool on

-Gaurav

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<i> Ant
Ps - yep it is an AMERICAN Sport - I meant AMERICA in its broader context than US of A but anyhow that’s cool.</i>

LoL you have me there. I wonder if the Canadians think of themselves as Americans?

Andy

LoL you have me there. I wonder if the Canadians think of themselves as Americans?

Andy

We do not since the term “American” seems to have been co-opted to describe a nationality outside of the name of the country. Speaking as a Canadian-American.

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jdc,

We do not since the term “American” seems to have been co-opted to describe a nationality outside of the name of the country. Speaking as a Canadian-American.

That is what I thought, thanks for confirming it. So Ant, it looks like you are using the term American incorrectly :slight_smile:

Andy

LoL you have me there. I wonder if the Canadians think of themselves as Americans?
I dunno but I know in Argentina, they feel a bit pissed off when anyone only refers to Americans from the US as Americans - Denny might have another POV tho.
A

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BD,

Great post! Leadership like you describe is one of the primary consideration I make when choosing where to put my money. Every company I own was chosen specifically with their leadership. AAPL, AYX, AMZN, BRK, ATVI, and most notably, NFLX.

All of them have very deep leadership teams with a long-term horizon for their companies. And all of them perform extremely well under pressure!

Great post, thanks for sharing your thoughts!

Paul - who reads books on leadership just to be able to measure the leaders of his investment interests.

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Thank you, Gaurav! Appreciate it.