According to a recent study, researchers at the CFA Institute and Morningstar report that popular brands are more likely to be poor investments as companies with popular recognition and traits receive lower returns, when compared to unpopular ones. This tends to reward value investing and other strategies that rely on buying what other investors are avoiding.
“Investing in unpopular assets is hard. First, they are typically unpopular for a reason. Mounting losses instead of bountiful profits, declining market share or a shrinking market for one’s product, an unusual loading of debt, and other characteristics that drive investors away are often indicators of continued poor performance rather than of what one value manager optimistically calls ‘troubles that are temporary,'” the researchers concluded. “Any strategy or factor that is widely enough used will fail.”
Researchers marked brand value, competitive advantage and reputation as things they wanted to study regarding stock popularity.
There were 75 to 100 stocks studied based on brand value, which were determined by third-party consultancy Interbrand, and those in the lowest 25 percent greatly outperformed those stocks in the highest 25 percent between April 2000 and August 2017.
The top companies by brand value in 2000 — including household names like Coca-Cola, Microsoft, IBM Intel, Nokia, GE and Ford — all fell in ratings by 2017, with new leaders like Apple, Google and Amazon making the list.
Brands studied that were in the lowest brand value quartile over those years returned 13.5 percent annually versus 7.3 percent for the top 25 percent of brands.
Of the companies studied, those that ranked in the bottom quartile of reputation between 2000 and 2017 returned a mean of 14 percent versus a mean return of 8.4 percent for the companies in the top reputation quartile.
By Jamie Barrie