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Fortune's Most Admired Companies in 2001 Versus Index Funds

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We 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 15-year period from January 2001 through December 2015. The results of the study are shown in the chart below, indicating the equal-weighted (across the nine remaining publicly traded companies) "Fortune Most Admired Portfolio" significantly underperformed most of the index portfolios. Despite the fact that the "Fortune Most Admired Portfolio" carried slightly higher risk than the riskiest Index Portfolio 100, $100,000 grew to $246,834 for the time period vs. $310,356 for Index Portfolio 100. The story gets worse for the "Fortune" tellers. Six of the ten ended up with worse returns than the S&P 500 for the period, and Dell Computer reverted to a privately held company in 2013. Even Warren Buffett's widely touted Berkshire Hathaway stock failed to compensate investors for risk, closely delivering the returns of an Index Portfolio 70, despite the fact that it took risk comparable to Index Portfolio 90.

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 basic: Pro-index funds 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.