Top Brand Names and Stock Returns

Many novice investors think it’s tough to get into the stock market: They think they have to buy a truckload of books, pore over them, then memorize a bunch of equations to do well on Wall Street. But here’s a thought: why not pay attention to the real world around you to get stock ideas? Investing in the brands you know and love is a great way for novice investors to get into the stock market.

It sure is more entertaining that using stock screens and reading The Wall Street Journal. It makes it easier to learn the financial mumbo-jumbo and anchor yourself with something you truly care about.

But is it a good way of actually selecting stocks? Isn’t that just for newbies and lazy people that don’t want to do the hard work it takes to learn about the market? A new study by WeSeed.com shows that the power of brands may be more than just a useful learning tool—there’s actually some substantial profit behind the old Peter Lynch adage.

WeSeed took the Top 100 brands as ranked by Business Week/InterBrand Best Global Brands and crunched the numbers. The surprising results show that investing in those top brands would have pummeled an investment in the S&P 500 from 2000–2008.

The top 100 brands returned 31% over that time, while the S&P 500 stumbled to a 28% loss. So if you had $1,000 dollars invested in this “Brand Index,” today you’d have $1,310. If you bought into the S&P 500, you’d have a mere $720.

The brands with the best returns include some familiar names. Volkswagen (VLKAY.PK) was at the top of the list with a 702% return — looks like all those quirky advertisements paid off after all. Blackberry (RIMM) is second on the list with a 427% return—and who would argue with that? Doesn’t every self-respecting business person have a Blackberry these days? Even the President has one, and he’s not giving it up anytime soon. Marlboro—owned by Altria (MO)—smoked the competition at number three, with Google (GOOG) doing no evil at number four.

Pizza Hut—owned by YUM! Brands (YUM)—rounds out the top five with a 246% return. Not bad for elastic-tasting pizza. Apple (AAPL) scores a six spot on the list with a 232% return, thanks to its iPod and the iPhone. Who doesn’t own an iPod or at least enjoy those “I’m a Mac” commercials?

Here’s the rest of the top ten:

The top 10 performers (ticker):		2000-2008 Total Return (%)
1. Volkswagen/Audi (VLKAY.PK)		702.35
2. BlackBerry (Research in Motion: RIMM)		427.16
3. Marlboro (Altria Group: MO)		354.87
4. Google (GOOG)		261.94
5. Pizza Hut/KFC (YUM! Brands: YUM)		246.65
6. Apple (AAPL)		232.06
7. Nintendo (NTDOY.PK)		168.22
8. Smirnoff (Diageo Plc: DEO)		145.03
9. Danone (GDNNY.PK)		140.00
10. Accenture (ACN)		137.33

It’s also worth mentioning that the top brands include names like AIG, Citi (C), and Ford (F), which are down 97%, 77%, and 90%, respectively over the course of the study. So it’s not like the group doesn’t have some real losers—it’s just that they’ve been outpaced (big time) by the winners.

Investing in what you know may sound over simplistic and “too easy” to investors who would rather look at P/E ratios and other valuations. But guess what? The numbers in this study can’t be ignored.

Power to the brands!

Comments

[James Wilson:]

Newbies buying thise stocks now ?

MO with all the law suits ?

So many stuck in netural.

Feb 03 08:23 AM

[jayjayjay1212:]

Hello,

Thank you for the article. Sorry to seem skeptical but would you have a link to the research Weseed did? I'd like to see the details of their research and all the stocks that were included/excluded.

I see for example that Research in Motion was included in the Top Brands portfolio. In 2000, RIM was still quite unknown outside the business world (its market cap was around 4-5 billion and market share was way smaller) and not what I would call a top brand at the time. Palm was much better known at that time, and we can't see if it was included or not as a top 100 brand.

The time frame studied is quite small (9 years) and included two periods of serious stock declines (2001 and 2008), where value stocks (normally top brands are generally categorized as value) with strong balance sheets fared better than growth stocks.

But indeed this research might be promising. A longer time horizon (or other short horizon research starting at different dates) and presenting results on a risk-adjusted basis would enhance the value of this research.

Bottom line is research needs to be incredibly exhaustive, properly conducted and unbiased before suggesting people take investment action upon it. In this article, we do not have the details, so we cannot judge its value.

Feb 03 08:35 AM

[Jake Berzon:]

First of all, a novice (or any other) investors would have had a hard time knowing in 2000 what Business Week will rate to be a top brand in 2008.

Furthermore, very few investors (not even psychic ones) can efficiently directly diversify into a portfolio of 100 equities. This is especially true of self-directed novices.

Thus, by following the simplistic advice of investing "in the brands you know and love," an amateur is more likely to loose virtually everything with companies like Citibank - a declining brand over this time period, than to gain with the likes of Google - hardly a household name in 2000.

Feb 03 09:14 AM

[Carlos Port...:]

Jake, I agree that simply "investing in what you know and love" is bad advice if you don't add some meat to it. You have to know the company, the management, the books (to some extent), and you have to do your homework. I don't think anyone would disagree with you on that.

But the study makes a strong point about the influence that brands have on stocks. Of course it's impossible to know which companies would be the top brands today back in 2000, but I still think the study makes a valid argument relating brands to stocks.

If you noticed everyone wearing an iPod or using a Blackberry before Wall Street crunched the numbers on these companies, you could've gotten in early and made a good investment in these brands/companies.

Is it a surefire way of picking stocks? Of course not. Is it another tool to keep in the arsenal, especially when it comes to novice investors scared away by P/E ratios and balance sheets? I don't see why not.

Feb 03 10:50 AM

[miklrz:]

It would be an interesting exercise, had it been set up correctly. As others have noted, what does it prove that today's top brands are also top performers? It's somewhat of a self-fulfilling prophecy, no? One of the biggest "novice" errors is improperly using or interpreting data. In that vein, nice example!

And James Wilson...you make it sound as if lawsuits were a new wrinkle for MO.

Feb 03 11:24 AM

[nukldrager:]

Way cool Carlos baby

Feb 04 09:37 AM

[tipalia:]

this article is just trying to help all small investors, it s not telling us to buy top brands at any cost. It also admits that there were some losers in the top 100. MIKLRZ I am on your side , I have avoided MO in the past thinking like James Wilson and what a mistake it was. I place a buy order every day for MO ,trying to get at 15$ and I hope that one day it will fill. But after all we need more people that has the same thinking than JW so that gives us to get MO on the cheap side. After all diverse opinions and diverse decisions are the essence of a stock market.

Feb 04 09:38 AM

[Carlos Port...:]

@ED K: You make a valid point, but the whole point of the WeSeed.com is to get people buying and selling fake stock. So yeah, the idea is for them to learn regardless of their stocks doing well or not.

Hopefully they can learn from their picks that do well as much as they can from those that don't. When they're ready to go into the real world, they'll be that much more prepared.

Feb 04 09:59 AM

[mollytjm:]

This is a good start to value investing, which is what Warren Buffett talks about all the time. It is essential to know the company, however, not just whether you like it a lot. Take Apple, for instance, which i have as stock. I have loved their products, since 1983. But until the company became financially secure, with no debt and with a top rated reputation, i didn't invest. Then i did and i will stay long term because the company is so secure and VERY innovative. This last is important to know. Don't invest because you love one product, if it's a tech company.
It's ok for Martha Stewart to just change the color of the sheets that have her name on them...but for a tech company, they better have brilliant innovative people...lots of them! And they better have $$$ in reserve and no debt, so if an idea tanks, they'll be ok until the brilliant staff comes up with the next idea.

Feb 04 10:22 AM