Investment Ideas – Family Owned Businesses

Lately I stumbled upon a few research reports that concluded what I had just heard as off-the-cuff comments about the advantage of owning stocks in family owned businesses. I had heard that there was research on the topic, but had never seen actual hard, cold data on this front until recently. At a basic level, the argument is fairly straight-forward: family-owned businesses have a better track record at taking a long term view and taking better decisions for the survival & growth of the business. As a result, the stocks in these companies consistently outperform their peers in the market, thus generating alpha for shareholders.

There are various slightly different terms used to indicate this kind of company control. Commonly used ones are owner-operator, or family-owned, or founder-run businesses. But no matter the term, the objective is the same: Build and grow a business; leave a legacy and/or continue the legacy of the business after inheriting from family members.

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