How to Invest in the Brands You Know

  • February 18, 2009
  • Jennifer Openshaw

I’m a fan of Google. I’m hooked on Apple’s iPhone. And I love that Dannon yogurt, thanks to its low-cal version that still tastes like the real thing.

But who would’ve ever thought that the brands I know and love could pay me back?

For a while now, I’ve been on a mission to teach people how to get smart about the stock market and their 401(k) accounts. So I decided to dig a little deeper and see if my theory about quality brands having a better portfolio performance holds water.

I have to tell you: I was pretty shocked by the numbers.

It turns out America’s Top 100 Brands (as ranked by Business Week and InterBrand) would have generated a 31% return from 2000 through 2008, while the S&P 500 left you with losses to the tune of 28%.

What does this mean to your portfolio? If you had invested $10,000 in the S&P 500 during this period, you would’ve had a loss of $2,810; your portfolio would’ve dropped to just $7,190 in value.

But if you invested $10,000 in America’s Top 100 brands, you would’ve gained $3,140 (enough to buy a year’s worth of groceries, according to the Census Bureau), bringing your portfolio to $13,140.

What’s interesting is that, when we look at the top 10 performers of the 100 brands, just about all are companies you probably know quite well. Take a look:

top 10 performers Chart

What’s also worth noting about the study is that the top 100 brands include names like AIG (down 97.67%), Citi (down 77.21%), Merrill Lynch (down 67.31%) and Ford (down 90.31%).

What can we take away from this?

  • First, brands perform well because companies tend to reinvest in those brands and deliver what their customers want.
  • Second, quality brands tend to be less volatile than other companies. The study showed that the volatility for the S&P 500 during the final year (and the most volatile of the nine years) was 57.71% vs. 52.85%. Not a big difference, but still comforting in these volatile times.
  • Third, even with their dramatic drops, consumers could have seen a higher return overall had they invested in “what they know.”
  • Finally, if you, as an investor or first-timer, simply use the insights you already have – by listening, watching, and talking to others.