NOTE: this was a past issue of my weekly newsletter, Timeless Gems. Join my free mailing list so you don’t miss out on future issues.
Today’s gem is this book snippet where the former TransDigm CEO is asked about his recent stock sale by an investor:
This is my favorite investor <> CEO interaction of all time. So many lessons in this single interaction.
As investors, we often forget that executives have personal lives outside of their business. Selling stock doesn’t necessarily mean they don’t no longer believe in their business.
As a buyer of owner-operator businesses, Atlasview comes across situations like this all the time. But instead of selling some stock, the CEOs are looking to sell ALL of their stock. The investor in the above snippet might ask: if your business is so great, why are you looking to sell it?
There are typically 3 completely non-business-related reasons owners look to sell their business:
- Retirement – kids don’t want the business, no internal succession plan, and eventually the owner wants to stop working full-time and enjoy retirement
- Burnout – running a small business is no walk in the park. Many owners just run out of energy to keep dealing with employees, customers, and or general operations (and often have a hard time completely delegating things to their underlings)
- Tragedy – adverse health/marital/family situations might catalyze a sale, as the owner needs the liquidity (and free time) for personal reasons
None of these reasons have anything to do with the actual business or the owner’s confidence in the business. It’s important to separate between the quality of the business and the owner’s reason for selling.
Final thought: selling stock to buy your wife a beach house can be a wise move!
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The snippet is from the book Lessons From The Titans, mandatory reading for all investors & operators. Nick Howley did a fantastic podcast a couple of years ago, I highly recommend it.
