Ask Matt: Is betting on CEOs a winning strategy?

USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com.

Q: Is betting on a good CEO a good investment strategy?

A: At the race track, some bettors pick the horse based on the trainer. And in office pools, some choose the team based on the coach. Similarly, many beginning investors think they can score big by picking a winning CEO.

The concept of picking a good CEO is appealing to especially beginning investors. While financial ratios and formulas might be complicated or difficult to analyze, most people can size up a CEO and get a general impression. Plus, successful executives often have track records of performance either at that company or at other firms. The idea is often popularized by pundits on financial TV or is a collarary to the "invest what you know" strategy.

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The problem is, that betting on CEOs isn't a long-term winning strategy. The most definitive work on this concept was done by Michelle Clayman of New Amsterdam Partners. Clayman picked out the companies hailed in Tom Peters' management book, "In Search of Excellence." A good CEO was one aspect of Peters' analysis. She then found companies that were the opposite of excellent. Clayman then compared the stock performances of the "good" companies versus the "bad" ones. The result? The bad companies' stocks topped the shares of the good companies by a wide margin between 1981 and 1986.

More recently, Chris Brooks and Stephen Pavelin in 2006 found similar results studying British companies. Those with good reputations mayhave beaten the broad stock market, but they actually were laggards when adjusted for the industry they're in. And while there have been some incredibly successful CEOs, there have been surprising disasters, too.

There's also the difficulty of quantifying what a good CEO is. Some think a good CEO is one that's cooking u! p new products and investing in the future, while others prefer CEOs who make it a habit to keep profitability up and increase dividends and stock buybacks. Betting on winning CEOs might sound like a no-lose bet, but in reality, there's more to investing that choosing a favorite leader.