How "Gangnam Style" Makes You a Better Investor

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Korean pop star PSY took over the online universe with the music video for "Gangnam Style," an insane romp through parking garages and public transportation, complete with an invisible-horse-riding dance craze that rivals the Macarena. But the meaning behind the video, oddly enough, holds a useful investing lesson.

This isn't just a video about a weird guy in a suit yelling in people's faces. It's a satire of Gangnam, a Seoul neighborhood similar in superficiality to Beverly Hills. Gangnam's residents are idolized by the rest of the country, even though there's not much substance to them. Wall Street has seen plenty of "Gangnam Style" stocks: seemingly spectacular companies that everyone wanted to own, but which lacked substantial business sense and quickly fizzled. Here are some of the greatest glitzy busts, and some humbler companies that are better equipped to carry a portfolio.

"Gangnam Style" companies
Besides viral videos, the Internet has birthed a slew of Gangnam-esque IPOs whose luster quickly faded after they went public. Daily-deals website Groupon was the talk of the town when it debuted in November 2011. But as fellow Fool contributor Dan Newman explains, it put too much money into mergers and marketing, and not enough into accounting, and CEO Andrew Mason may have been drinking more of the Kool-Aid than anyone. Since then, Groupon's stock price has taken a steady dive, the fate of Mason's career is up in the air, and even though revenue has reached a three-year high, Groupon's advertising expenses have shot its net income into the negatives. A Cinderella story, this is not.


Zynga also stirred up a frenzy when it arrived on the stock market in 2011. Firmly clamping onto Facebook's coattails, the gaming company somehow made raising virtual barnyard animals seem cool, and breathed new life into Scrabble by giving it a different name. The honeymoon, of course, was short-lived. Zynga's stock price has since flatlined, dropping from $14 to $2 in less than a year; in that time frame, it's underperformed the S&P by 90 percentage points. The company's reliance on Facebook may also prove to be a disadvantage; the social network recently swept up Zynga's CFO for a senior finance job at its own company. Financially, Zynga continues to increase revenue, but last year it put so much money into research and development that, like Groupon, its net income sank into the red. It might own Bejeweled, but Zynga is definitely not a gem.

A humbler alternative
Investing legend Peter Lynch says that the more boring a company is, the more he loves it. Unlike Gangnam-style status symbols, what these companies lack in flair, they make up for in solid business practices. Since the rest of the market is too busy swooning over the latest Groupon or Zynga, few are paying attention to the non-glitzy stocks, which could mean it's the perfect time to buy them.

Waste Management provides a brilliant example of boring beauty. Trash is a recession-proof (if not very glamorous) industry, and this company's strong, consistent margins testify to a solid business foundation. Waste Management also offers a dividend yield of 4.2%, so you can get your money's worth with this company, and then some.

There's also Costco , a giant among wholesale warehouses. Its stock has outperformed the S&P 500 since 2008, and currently beats it by 32 percentage points over that time frame. Its margins also remain unshakably consistent, and its former CEO, Jim Sinegal, was so down-to-earth that he famously answered his own phone. Companies like this might not be alluring, but they can help a portfolio reap major returns.

And one that's kind of both
PSY's song criticizes Gangnam residents who barely spend money on groceries but shell out tons of it on Starbucks , a huge status symbol in Korea. Even though it has seduced vapid socialites, Starbucks has actually proven itself to be a great long-term investment. Since the return of CEO Howard Schultz, revenue has increased year over year, and is now up 24% from 2010 alone. Its stock price currently beats the S&P 500 by an astounding 130-plus percentage points since 2008. Starbucks is so high-profile that Fools might assume it's overvalued. However, its P/E of 28.75 is practically identical to the industry average of 28.70. This is a gorgeous company with the brains and boring, solid business to boot.

"Gangnam Style" isn't exactly an artistic masterpiece, but its message is surprisingly applicable to Mr. Market's ever-changing fixations. Companies that look shiny and enticing might turn out to be hollow on the inside, while the ones that put you to sleep could be big winners down the road. And then, once in a while, a Starbucks appears, shiny and substantial. To tell the difference, Fools should stay alert to the financial facts, and always retain at least a tiny bit of skepticism.

Want to know more about Zynga's "Gangnam Style" travesty, and see whether it could one day go back to being a buy? You can learn everything you need to know about Zynga in our new premium research report. Don't even think about picking up shares before you read what our top analysts have to say about Zynga. Click here to access your copy.

The article How "Gangnam Style" Makes You a Better Investor originally appeared on Fool.com.

Caroline Bennett has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale, Starbucks, and Waste Management and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Costco Wholesale, Starbucks, and Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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