Best investment in the last 20 years?

I was asked this in the pub last night, as a means to identify the qualities that might help identify markers that could identify the best investments for the next 20 years.

To me, the obvious ones from 2000ish onwards would be the likes of Apple, Amazon, Netflix and Tesla. There are possibly a few more I’ve missed.

All fairly well managed. If you take Amazon and Tesla, those at the top took their salary in long term share incentives. Could that be one good marker to look out for - is there a way to search for directors that take most of their salary in share incentives to identify companies?

The all also reinvest heavily, a second good marker perhaps (don’t pay dividends perhaps?).

They have also all tried to do something a little different to their peers, and have a convenience factor. Another marker?

Lots of incentive plans are LT incentive, or labelled as such, but this entails many pitfalls.

Regarding ST incentive, i would avoid any company with meaningful cash bonus (more than 10% of comp.)

Base salary needs to be comfortable enough, but shouldn’t be much more than 30-40% of total comp.

LT incentives can be misleading. I appreciate share based compensation with a 5 years grant horizon, but deferred stock compensation tend to be a red flag in my opinion; those are director shares granted after quitting the position, and research suggests that they fail to align the management’s incentive with the shareholders.

LT grants needs to be scrutinized; many of them just look at 1y-3y average EBITDA, which tend to be a poor evaluation of long term performance.

Absolutely mandatory are clawback clauses, allowing the shareholders to reclaim past compensation even after the departure of the directors.

Basically, look at it like an insurance contract; to avoid moral hazard, the management needs to share some of the risks past their time at the company; clawback clauses tend to act like deductibles (own responsibility) on your insurance.

Besides that, I haven’t found yet a very strict rule to follow; you’d have to take a deep look at every compensation rules and performance criteria to make up your mind.

Options are a good alternative to stock comp, but be careful to the grant date, the maturity date, the strike price, and more importantly how the option is valued on the company’s book. Under reporting of real cost to shareholders is on the decline, but still very common.