Do you remember the book, In Search Of Excellence, that came out in the early 80ís? Itís considered one of the best business books ever written and is still a staple in most graduate business schools. The book identified the 43 best run companies in the U.S using various financial and management metrics. It was written to be a template on how to create an excellent company.
This prompted many academic studies into how these excellent companies performed on an investment return basis when compared to unexcellent companies based on the same criteria. Check out one such study that Swedroe wrote about, Are Great Companies Really Better Investments. Of all the studies Iím aware of comparing excellent vs unexcellent companies, the results might surprise you. In this study which compares results from June 30, 1970 Ė June 30, 2013, the unexcellent companies outperformed by 222% over this time.Are great companies really better investments?
Hereís a short video that our friends at IFA put together, Admired vs Spurned, that shows another study with similar results.IFA.tv - Admired vs. Spurned - Show 312
These results are totally counterintuitive as to what most investors expect. Itís an important investment lesson that most investors will never get. Even though value investing has been out of favor for a few years, the long term results still remain the same. This is precisely why we still tilt our portfolios towards value stocks.