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 chief 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, Cover Girl, 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.Chipotle (NYS: CMG)
The fundamental human value the boutique burrito purveyor touches on is "impacting society," which Stengel defines specifically as "affecting society broadly, including by challenging the status quo and redefining categories."

Boutique burrito purveyor? What does that even mean? Thanks to Chipotle upending and redefining the category of Mexican food, we now know. It means fresh, natural food, made to order right in front of you. It means burritos you can have without feeling you've done a disservice to your body. And having crossed the gastronomical Rubicon from fast food to casual dining, it means the Chipotle brand is further differentiated from Yum! Brands' (NYS: YUM) Taco Bell and other, similar Mexican eateries. But Chipotle needs to watch its back because Taco Bell has decided to up the ante by drastically improving food quality at its locations.

Having successfully challenged the status quo and redefined its business category, "Boutique burrito purveyor," aka Chipotle, also means a killer business and a killer investment.

2.Brown-Forman (NYS: BF.B)
Never heard of Brown-Forman? You've definitely heard of one of its flagship brands -- Jack Daniel's. The fundamental human value this 146-year-old brand touches on is "evoking pride," which Stengel defines as "giving people increased confidence, strength, security, and vitality."

The ideal behind the Jack Daniel's brand is one that has remained virtually unchanged since the distillery opened its doors in 1866, i.e., pride in authenticity, independence, and integrity. Consumers of the brand identify strongly with this ideal, and Jack Daniel's has never wavered. The brand never got too trendy or followed fads. As such, it never lost its down-home cachet with customers and has even managed to find a dedicated following beyond American borders.

Through seven generations of management, the business has expanded to 135 countries and grown to be the largest whiskey brand in the world. And as the Jack Daniel's brand has done well, so has Brown-Forman, which bought the distillery in 1956. A big thanks, then, to Mr. Jack Daniels, from all the investors in Brown-Forman, for evoking both pride and profits from the whisky business.

3.MasterCard (NYS: MA)
The fundamental human value MasterCard touches on is "eliciting joy," which Stengel defines as "activating experiences of happiness, wonder, and limitless possibility."

And there's nothing that brings so many people more unfettered joy, happiness, and wonder than the prospect of shopping, especially with the prospect of not having to pay for their purchases for at least 30 days. On a less wanton note, the credit card really is an innovation. When used responsibly, it can expand possibilities and get people through rough times. Small-business owners, for instance, may really count on that 30-day payment grace period to get their businesses through a down month.

As Stengel so concisely puts it, "MasterCard exists to make the world of commerce simpler and more flexible," in the process making a tidy profit for all involved.

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 continue to cover the five fundamental human values that make a brand successful, and delve into the remaining companies on his list, as well.

The Motley Fool's Top Stock for 2012
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 the stock is still 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 Yum! Brands, Chipotle Mexican Grill, and MasterCard. Motley Fool newsletter services have recommended buying shares of Chipotle Mexican Grill and Yum! Brands. 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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