How to Beat the S&P 500 by 400%

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"Maximum growth and high ideals are not incompatible. They're inseparable."

So states marketing guru Jim Stengel in his new book, Grow: How Ideals Power Growth and Profits at the World's Greatest Companies. Stengel spent seven years as global marketing officer at Procter & Gamble, managing the world's biggest marketing budget and overseeing the revitalization of such halcyon but then troubled brands as Jif, CoverGirl, and Pampers.

The central argument of Stengel's book is that "a brand ideal" must be at the core of every business. This is "not social responsibility or altruism," he argues, "but a program for profit and growth based on improving people's lives." Stengel backs up this lofty rhetoric with data from a 10-year study of more than 50,000 global brands, from which comes "The Stengel 50" -- companies that as a group have outperformed the S&P 500 by 400% on average since 2001.

Following are three of those 50 companies, each having at its core a brand ideal that touches at least one of the five fundamental human values Stengel deems necessary for a brand's success:

1. Starbucks (NAS: SBUX)
The fundamental human value the boutique coffee purveyor and food retailer touches on is "enabling connection," which Stengel defines as "enhancing the ability of people to connect with one another and the world in meaningful ways."

Starbucks is a beautiful throwback. For all its trendiness, for all the complicated drinks, it's still a coffee shop. It's still that "third place" between work and home where people physically get together. Connecting virtually, of course, also counts. So whether it's an email exchange, someone researching a fact on the Web, or two people chatting it up while waiting for their lattes, Starbucks facilitates connections, enhancing lives and building one of the world's great retail businesses in the process.

2. Coca-Cola (NYS: KO)
The fundamental human value this 125-year-old company touches on is "eliciting joy," which Stengel defines as "activating experiences of happiness, wonder, and limitless possibility."

In the business of selling fizzy, brown sugar water, the obvious thing for a company to do is focus on the drink's taste, how refreshing it is, etc. Coca-Cola has built one of the world's great brands and businesses by instead selling the "experience" that goes along with swigging down said sugar water. Consider "Coke: It's the Real Thing." Or "I'd like to teach the world to sing in perfect harmony." Or "Have a Coke and a Smile." They're all slogans that reach for a higher ideal. Coke isn't just a refreshing drink, it's something that's intended to make you feel better about everything, something that can make people happy, bring them together, and change the world.

So why Coca-Cola and not PepsiCo (NYS: PEP) ? There are people who certainly swear by the "distinctive" taste of each, but both products are essentially the same. The answer is, Pepsi never tapped into that fundamental human value of "eliciting joy" the way that Coke did and still does. Pepsi has always been just a drink, while Coke has always been a world more.

3. Google (NAS: GOOG)
The fundamental human value this fantastically successful organization touches on is "inspiring exploration," which Stengel defines as "helping people explore new horizons and new experiences."

So this one is a no-brainer. Google has become so dominant in Internet search, and Internet search so dominant in our lives, that the company name has become a verb. If someone asks you a question you can't answer, it's unlikely you'll tell them to "do an Internet search for it"; you'll tell them to "Google it."

Compare Google to Microsoft (NAS: MSFT) in this regard. Think of the explosion of personal computing in the 1980s and about how big, dominant, and omnipresent Microsoft became in everyone's life. Yet the company never made the transition in people's minds from software provider to exploration provider. From Google Search to Google Earth to Google Sky, Google takes us place we've never been before.

Woulda, shoulda, still can
Had you invested in The Stengel 50 from 2001 to 2011, your returns would have beaten the S&P 500 by 400%. Steady now. That's a shocking enough number to make the knees go wobbly.

Stay tuned for further dispatches from your Foolish columnist on the Stengel investing philosophy, as we cover the rest of the five fundamental human values that make a brand successful, and delve into the other 47 companies on his list. One company not on Stengel's list, but one The Motley Fool is calling its top stock pick for 2012, can be found in our special free report, aptly titled "The Motley Fool's Top Stock for 2012." Get it while it's hot by clicking here now.

At the time this article was published Fool contributorJohn Grgurichis ready, frankly, for 400% returns on his investments, but he owns no shares of any of the companies mentioned in this column. The Motley Fool, however, owns shares of PepsiCo, Google, Coca-Cola, Microsoft, and Starbucks.Motley Fool newsletter serviceshave recommended buying shares of PepsiCo, Coca-Cola, Google, Microsoft, and Starbucks.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Microsoft.Motley Fool newsletter serviceshave recommended creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has a scintillatingdisclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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