Despised Most Admired Companies
My boss sent me a copy of a piece in O’Dwyer’s which is a trade newsletter for the pr trade. I read it avidly because it was about the granddaddy of all reputation scorecards, Fortune’s Most Admired Companies survey. [By the way, we should be hearing about those most admired companies the week of March 5th.] The title of the research that O’Dwyer cites is “Stocks of Admired Companies and Despised Ones” by University of Michigan professor Deniz Anginer, Kenneth Fisher of Fisher Investments and Meir Statman of Santa Clara University. I was somewhat alarmed on page one of the research when I saw the publication date was February 2008. We are not there yet, are we?
The professors and advisors had the following conclusion — stocks of admired companies had lower returns, on average, than stocks of despised companies during the 23 years from April 1983 through March 2006. They surmise that the differences in the returns of stocks of admired and despised companies are due to affect, “the quick feeling that distinguishes good from bad, admired from despised.” The authors write, “The affect of admired companies is positive, and investors who were attracted by affect to stocks of admired companies during April 1983 – March 2006 paid for it with lower returns.” They also mention several caveats — they found that the relative returns of stocks of admired and despised companies varied considerably from year to year and from decade to decade. Stocks of admired companies were the winners in some periods and losers in other periods.
All in all, am having a hard time buying this. The research I have done by looking at the top 10 most admired and the bottom 10 least admired shows clear advantages to being admired. For those on the bottom, the costs to companies of having poor reputations are enormous. It is hard to imagine that feeling good about owning stock in a poorly performing but admired company stock is worth the loss. Since I am not a mathematician, it is hard to argue with their columns of numbers but common sense tells me that companies with bad reputations are not worth owning.