Do Trustworthy Public Companies Outperform the S&P 500 Over Time?
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Over 10 years ago, and in the wake of the financial crisis, we set out to test the following hypothesis: Over time, trustworthy public companies will outperform the S&P 500.
The first task was to create a framework to gauge and evaluate trustworthy behavior. Over the course of a year, and with the assistance of dozens of professionals across a number of functional specialties, we arrived at a consensus on how trustworthy business behavior could be evaluated and ranked, and the FACTS® Framework was born.
Publicly available data allows us to combine our five factors which are equally weighted in our model:
- Financial stability and strength
- Accounting Conservativeness
- Corporate Integrity (Governance)
- Transparency
- Sustainability
In order to test our hypothesis, every year since 2011 I selected a sample of ten of the most trustworthy companies and published this “Top10” list on our blog. Based on 10, 5 and 3 year returns, our hypothesis is proving correct. The most trustworthy public companies outperform the S&P 500 over time.
Here are the results using VectorVest as our analytics tool.
Ten years: Of the 10 companies selected in 2011, 5 were acquired by other companies. (Smithfield Foods, Dole, Lexmark, Allergan and Temple Inland.) The 5 remaining cumulative returns are 868% vs. 278% for S&P.
Five years: All 10 companies are still publicly trading. Ten are up and zero down. Cumulative return 166% vs. 117% for S&P.
Three years: All 10 companies are still publicly trading. Ten are up and zero down. Cumulative returns 138% vs. 61% for S&P.
The results shown above are exclusive of dividends.
Some might claim that this research is not statistically valid. We are okay with that. Given these returns, it would be difficult to argue that trustworthy business behavior does not pay off. After all, why wouldn’t it?
The next time someone asks whether there is a “business case” for trust, please share this article.
Worth noting:
- No companies in the financial sector ranked highly enough to be included in the three lists.
- No FAANGs ranked highly enough to be included in the three lists.
Please send any questions or comments to Barbara Brooks Kimmel at barbara@trustacrossamerica.com
