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Investing in the most reputable brands in the world
Benchmarking performance of the worlds most reputable brands against S&P500
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Coke is just soda.
Levi’s are just jeans.
The iPhone is just a phone.
Yet, we go out of our ways to select certain brands over others - most of the time at a higher price . Everyone knows the importance of reputation for a company. Highly reputable brands have multiple things going for them:
Their customers are extremely loyal and drive recurring purchases
The public is vocal about recommending their brand and products
Easier to expand to other markets as their reputation precedes them
Basically, you can consider having a great reputation to be a positive feedback loop on steroids! In an economy where 70-80% of the market value of a company comes from intangible assets like brand equity, intellectual capital, and goodwill , reputations can make or break a company’s performance.
In one of my previous analyses, we had discovered and proved that the best companies to work for routinely beat the market in stock returns. So this week, let’s see how the most reputed brands have performed over the last decade!
While there are multiple companies that measure reputation, I chose the RepTrack list for my analysis as they seem to be the most established ones and have been creating their top 100 list for the last 2 decades.
They base their study on more than 240K responders over 15+ countries and the rating tells us how the companies are regarded by the general public. They have multiple factors that go into the final ranking, but for this analysis, I am only considering the final rank of the company.
I am considering the companies that were present in the Top 10 list at least once in the last decade [2012 - 2021]
RepTrack publishes their result in March, every year. Since I could not find any fixed date of publication, for the purpose of the stock price calculation, I am using April 1st of every year as my investment date.
Even though the company produces a Top 100 list, I have limited my analysis to the Top 10 companies . We then calculate the stock returns generated by these companies  over various time periods (1-year, 3-years, 5-years & till date) and then compare it to our benchmark. 
Companies in the most reputable list have consistently beaten SPY over different time periods. There is a significant improvement in overall return when holding the investment for a longer-term.
My hypothesis here is that, even though the short-term returns can be affected by market cycles, over the long run, companies having a great reputation end up outperforming their peers, and this is reflected in their stock price.
Another interesting insight we can derive from the data is the performance of the top-10 companies in each year’s list. As we can see, the most reputable brands beat SPY by a considerable margin in 7/10 years .
But, before you YOLO your next paycheck into this strategy, do note that most of the returns were contributed by tech companies . This is expected given the tech rally we had over the past decade. What is more interesting is how difficult it is to lose money investing in the top brands. Only 4 companies that were in the top 10 list over the past decade had a negative return.
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Limitations to the Analysis
There are some limitations to the above analysis that you should be aware of before trying to replicate the strategy.
Ideally, the backtest should be done over 30-40 year’s worth of data as we would know how the changing trends would impact the analysis. The last decade or so was predominantly biased towards tech.
One should also benchmark this against the companies having an average or poor reputation to see if reputation is indeed a distinguishing factor that is driving the returns. 
Finally, reputation is just one factor related to the company. There are companies whose reputations are in the gutter but have produced extraordinary returns for their shareholders (Facebook gave 175% return & Volkswagen gave 117% return in the last 5 years even after all the scandals they have been through).
Whether you like it or not, brands seem to have a significant impact on our daily lives. Just think about the number of times you/your friend have sworn by a brand and recommended it to everyone . Almost all the brands in the top 10 list (eg. Rolex, Ferrari, Adidas, Harley-Davidson) have users that are extremely loyal, willing to pay a premium, and acts as unofficial spokespersons for the company.
Our analysis, in turn, proves that all these positive factors cause the company to outperform the market! So now you know what to do next time when your friend is swearing by a brand.
Until next week…
Google Sheet containing all the data used for analysis: Here
Footnotes and Existing Research
 This great video by Big Think showcases how Apple and Nike have spent billions of dollars for creating a positive brand image in our brains and most of us, in the end, are not rational customers.
 Reputation and Its Risks - Harvard Business Review
 The main reason for stopping with the Top 10 is the manual data pull process. They do not give a stock ticker associated with the stock nor is the list easily parsable. Given we are pulling data for 10 years, I limited myself to the top 10 companies.
 A stock is only considered if it’s directly investable from the US market and is an independent company (Examples of companies ignored - Rolex, LEGO Group, and Bosch)
 Before you come at me with Pitchforks for using S&P 500 instead of Nasdaq Composite, please take a look at the list of companies. It’s from a wide variety of industries. Adding to this, even though tech provided the majority of returns, starting in 2012, you would not have any idea about the tech run we would be having over the next decade.
 I don’t think 2020 and 2021 should be counted here due to two reasons. First, it’s not enough time as we can see from the first graph (there is very little difference in performance over 1 year period), and secondly, 2020 was one of the largest bull runs in the history of SPY.
 This report by RepTrack shows the impact the Emission Scandal had on Volkswagen
 Micheal Platt, Professor of Neuroscience at Yale did a study that showcased that Apple users show brain empathy response to the Apple brand exactly the same way they would to a family member. Strangely, Samsung users did not have any positive or negative responses when good or bad news was released about the brand
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