Peter Lynch, the famous fund manager, always used to tell people to buy the stocks of companies they admired. That might not be the best advice according to a new study from Meir Statman of Santa Clara University and Deniz Anginer of the University of Michigan.
The two researchers looked at Fortune magazine’s annual list of America’s Most Admired Companies and compared the returns of two portfolios—one composed of admired companies and one of unadmired companies.
They found that unadmired companies produced better returns for investors than the admired ones. Between 1983 and 2007, the unadmired companies generated average annual investor returns of 18.3% compared to 16.3% for the admired firms.
Fortune bases its most-admired list on surveys of executives, directors and securities analysts, so the findings suggest that even expert opinion can be seriously mistaken. In fact, the study suggests that an increase in admiration usually signals lower future returns.
We can’t wait for some smart investor-relations person to fasten on these results: “Of course, we’re a good investment. Everyone hates us!”
Freelance business journalist Ian McGugan blogs for the Financial Post