Hulbert on Investing: Most-Admired Companies Aren’t Always Great Investments

As financial analysts continue to evaluate the value of popular companies in the market, they find a trend among them. Their stocks are overvalued due to investors’ high expectations for these companies. For example, Harris Interactive’s survey listed Apple as the company with the best reputation in 2011; stocks decreased 20% since then. Ironically, companies at the bottom of similar surveys outperformed the popular ones. Some contrarian investors argue that companies appear at the top of these surveys because their stocks have been performing well previously. However, publication of these surveys also increase investors’ expectations; ultimately, these stocks are overvalued by the general public. Amazon most likely appeared at the top of the Harris Interactive survey this year because of its 49% increase for the last 12 months. On the contrary, decreasing stock prices for certain companies, such as Goldman Sachs, appeared at the bottom of the survey and are undervalued.

Publication of similar surveys is able to influence investors’ expectations for the companies. However, it is important for investors to analyze the true value of a company rather than follow the general view. A quote written by Humphrey Neill best describes this situation, “When everyone thinks alike, everyone is likely to be wrong.”

Written By: Melody Mark

Source:

Hulbert, Mark. “Most-Admired Companies Aren’t Always Great Investments.” Wall Street Journal. Dow Jones & Company, 8 Mar. 2013. Web. 9 Mar. 2013.

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