- Aug 17, 2007
How Firms of Endearment Perform
Imagine our surprise, then, when we completed our investor analysis. These widely loved companies (those that are publicly traded) outperformed the S&P 500 by significant margins, over 10-, 5-, and 3-year time horizons. In fact, the public FoEs returned 1,026 percent for investors over the 10 years ending June 30, 2006, compared to 122 percent for the S&P 500; that's more than a 8-to-1 ratio! Over five years, the ratio is even higher, because the FoEs returned 128 percent, while the S&P 500 only gained 13 percent. Over three years, FoEs returned 73 percent versus 38 percent for the S&P 500.
Note that the relative gap in performance over the past five years provides even more compelling support for the FoE hypothesis than the gap over a 10-year horizon. This is because the five-year analysis spans a period during which there was a deep recession in the United States (and worldwide, for that matter). This period started with the bursting of the dotcom bubble. The market has struggled to break even ever since. However, FoEs engender such loyalty and a sense of common cause with their stakeholders that they seem far better able to withstand market downturns than their competitors.
If this is not a "feel good" story, we don't know what is. In fact, it is much more than a feel good story—we find it to be a deeply inspirational one. Apparently, these companies have figured out that not only can you have your cake and eat it too; you can also give some to your friends, donate some to a soup kitchen, and help support the local cooking school. How is it that these companies can be so generous to everyone who costs them money (customers, employees, suppliers, communities) and still deliver superior (some would say spectacular) returns to investors? The answer to that important question is what this book is all about.