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September, 2017


The U.S. stock market is overpriced. A case can certainly be made that it will keep going higher from here, but by historical standards it is already above average per measures of good value. One way to evaluate which companies might do well following an inevitable correction or bear market is by looking at chief executive officer (CEO) pay. Corporate top brass are receiving higher pay packages than ever before. Such large levels of compensation are often at the expense of both shareholders and employees. Studies have in fact shown that companies with higher CEO pay tend to do worse in terms of both profitability and share performance than those with less generous chief executive compensation.

For example, per "Lower Paid CEOs Generate Bigger Returns Than High Flyers: Study," by David Lieberman in, July 25, 2016, in a 10-year study reported on in 2016, it was found that among 429 large-cap companies, the CEOs receiving the lowest 20% of compensation provided their shareholders with greater returns than those receiving the highest 20%. The differences were significant, up to 39%, in favor of positive results for lower paid CEO companies. There are other indications as well that, overall, lower pay for the CEOs of publicly traded companies enhances shareholder returns. Of course, the rationale for ever increasing CEO pay is the opposite. Oddly enough, few boards of directors limit their CEOs' pay, possibly suggesting the directors do not have their shareholders' interests in mind but are in league with the CEOs. The latter, of course, provide their salaries.

The pay of a corporate chief executive officer may be viewed in various ways, for instance, the actual dollar amounts of annual pay in relation to CEOs of other roughly equivalent market-cap companies, the ratio of a CEO's pay to that of his or her company's employees, or the percentage of a CEO compensation relative to the company's profitability. By one or more of these standards, the following stock symbols represent companies whose CEOs have recently had well below average levels of pay: AAPL; ADBE; ALXN; ASH; AVP; AXP; BAC; BRK/B; CAT; COF; CPRT; CTXS; EBAY; ELMD; EXPE; FB; FOSL; GOOGL; GRPN; IEP; INTU; KEYS; KHZ; KMI; MCD; MSFT; NATI; NOW; NVDA; ORCL; PYPL; RMAX; SHLD; SNAP; SQ; TSLA; TTWO; URBN; WERN; WFM; YELP; and YHOO.

Investors are invited to use their own criteria to weed from such a list a selection of stocks likely to hold up well for the long-term and, at the right price, adequately reward shareholders.

Low CEO Compensation Companies

Max. Buy
Apple, Inc.AAPL$158.676.1918.010.821.59%$127.00
Berkshire Hathaway, Class B sharesBRK/B$181.471.4920.530.340.00%$145.00
Intuit, Inc.INTU$143.8027.3038.660.360.96%$115.00
Kinder Morgan, Inc.KMI$19.391.2363.991.062.59%$16.00
Oracle Corp.ORCL$48.333.7121.871.071.56%$39.00

Personally, I believe our equity market will begin to be attractive again once it has fallen to around 80% of its present level. Markets do not necessarily stop falling just when they get close to fair value, though, so I would not be surprised, once a tumble commences, to see average prices dip significantly more than that before the next bull market might start.

Nonetheless, in looking out across a potential and substantial plummet of share prices, I sought to pick companies likely to be worthwhile after falling at least 20% in price. Those chosen are in the table. In my view, each of these corporations is ably led by a CEO willing to accept less than average pay, at least in relation to company profits. These five, then, AAPL, BRK/B; INTU; KMI; and ORCL, would for me be good companies to own and merit share accumulation once a big market drop is well underway.

Best of luck with your own investing researches and post-bull selections.


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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