Fortune Kookie

I analyzed Fortune’s “Ten Most Admired Companies” (2001)1 as a whole portfolio and as individual companies, comparing them to 10 index portfolios for the 17-year period from January 2001 through December 2017. The results of the study are shown in Figure 3-6, indicating the equal-weighted (across the nine remaining publicly traded companies) “Fortune Most Admired Portfolio” underperformed many of the index portfolios — getting about the same returns as Index Portfolio 75 which has 25% fixed income. Despite the fact that the “Fortune Most Admired Portfolio” carried comparable risk to the riskiest Index Portfolio 100, $100,000 grew to $336,000 for the time period vs. $409,543 for Index Portfolio 100. The story is even worse for the “Fortune” tellers. Four of the ten companies took on significantly greater risk than the Index Portfolio 100,  but earned returns lower than the Index Portfolio 40 which contains 60% fixed income. Important to note, one of the “Ten Most Admired Companies,” Dell Computer, ceased to exist as a public company and reverted to a private company in 2013.

Figure 3-6

Fortune_Magazines_Ten_Most_Admired_Companies

This sort of data begs the question: If stock picking is such a fruitless endeavor, why do magazines keep selling this elusive dream? The answer is quite simple: Pro-index fund stories don’t sell magazines. No big brokerage house would take out a full-page ad that says, “Don’t hire us to trade your portfolio — just index and relax.” Nonetheless, this is a poor reason to perpetuate the myth that financial journalists or “Fortune Tellers” can pick the handful of stocks to achieve wealth. In fact, by the looks of it, the best way to lose a fortune is to follow Fortune.

    -1 Ahmad Diba and Lisa Munoz, America’s Most Admired Companies, Fortune Magazine, Feb. 19, 2001.
Step 3Stock PickersFortune MagazineFortune TellersTen Most Admired CompaniesWarren BuffettBerkshire Hathaway