Reading This Glassdoor Report Could Have Earned You 13% in 6 Months

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Cyber Monday
Ross D. Franklin/ employee Monica Chavez packs up a box after she wraps the gift at a fulfillment center on Dec. 2, or "Cyber Monday."
"Who knows a company -- any company -- better than the employees who work for it? There's no need to answer. That's actually a rhetorical question, and the answer is 'Nobody.' "

So began our special report in May on Glassdoor's May 2013 survey of "The Top 10 Companies with the Best Business Outlook in the Next 6 Months." And so began the countdown clock, as we began surveilling these companies to see if positive employee sentiment would translate into market-beating profits on their stocks.

Well, six months later (actually, a bit more than six months), we've finally crunched the data, and the results are in:

Glassdoor wins!

Employees Do Know Best

Our aim with this experiment was simple: Observe the eight companies on Glassdoor's list that have publicly traded stocks. Check their stock prices at the beginning of the experiment (May 24), and check where they ended up six months later (Oct. 24). Compare these performances individually -- and as an average of the eight stocks -- to the returns of the nation's 500 biggest companies on the S&P 500 index.

Here's how the results came out:

As you can see, we've painted these results in easy-to-identify colors. The S&P 500 benchmark is dressed in basic black. All stocks that outperformed the S&P's 6.2 percent six-month return are in bright green. Those that posted positive returns but underperformed the S&P are in light green. The single stock on the list that posted both negative stock price performance and underperformed the S&P is in red.

Digging into the Data

So how did these stocks perform, in dollars, cents and percents? From May 24 to Oct. 24:
  • (AMZN) beat all comers, rising to $332.21 from $261.74 for a 26.9 percent gain.
  • Yahoo (YHOO) did nearly as well, surging 25.6 percent to $33.08 from $26.33.
  • Whole Foods Market (WFM) rose to $64.59 from $52.40 -- a 23.3 percent gain.
  • Shares of Google (GOOG) gained 17.4 percent to $1,025.55 from $873.32.
  • General Motors (GM) posted a respectable 8.4 percent rise to $35.63 from $32.87.
And the average return from all eight of the publicly traded stocks on Glassdoor's list? 13.3 percent. All that's as compared to the S&P 500 (^GPSC) itself, which rose to $1,752.07 from $1,649.60 for a 6.2 percent gain.

Counting Up the Laggards

Seven of the eight stocks posted positive returns, with five of the eight -- a majority -- outperforming the S&P. But what about the laggards?

Qualcomm (QCOM) and SAP (SAP) posted gains of 4.2 percent and 3.4 percent, respectively -- positive returns, but not enough to match the market's performance. Home Depot (HD) actually declined in value, losing 2.8 percent and underperforming the market as well.


In the subsequent two months following our initial six-month examination period, four stocks -- Google, Yahoo, Amazon, and General Motors -- all continued to outperform the S&P, widening their lead over the rest of the market (which is now up 8 percent since May 24). Home Depot and SAP, while continuing to trail the averages, did at least close the gap a bit.

Meanwhile, %VIRTUAL-article-sponsoredlinks%Qualcomm shifted from a market laggard to an outperformer (gaining 13.5 percent since May 24), while Whole Foods gave up some of its gains (but still beat the S&P).

So what can we learn from all this?

One trial run does not an infallible theory make. However, initial indications suggest that Glassdoor may be on to something. Companies where employees think prospects are improving outperformed the S&P by some pretty significant margins. Had you invested $10,000 spread out among these eight companies in May, by October you'd have been sitting on a $1,330 profit.

And the suggestion we made back in May -- to focus on Amazon, Whole Foods and Qualcomm in particular, because their stocks had been underperforming the stock market just before employees said they were going to do better? They did in fact do better. Much better. (Although it took Qualcomm an extra two months to prove it).

$10,000 invested in those three would have netted you $2,367 in eight months -- nearly three times what the S&P 500 has returned since May. And just in time for Christmas.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends, General Motors, Google, Home Depot, Whole Foods Market and Yahoo. The Motley Fool owns shares of, Google, Qualcomm and Whole Foods Market. John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors.

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Reading This Glassdoor Report Could Have Earned You 13% in 6 Months

Warren Buffett is a great investor, but what makes him rich is that he's been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.

Most people don't start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That's unfortunate, and there's no way to fix it retroactively. It's a good reminder of how important it is to teach young people to start saving as soon as possible.

Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That's really all there is to it.

The dividend yield we know: It's currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That's totally unknowable.

Earnings multiples reflect people's feelings about the future. And there's just no way to know what people are going to think about the future in the future. How could you?

If someone said, "I think most people will be in a 10% better mood in the year 2023," we'd call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.

Someone who bought a low-cost S&P 500 index fund in 2003 earned a 97% return by the end of 2012. That's great! And they didn't need to know a thing about portfolio management, technical analysis, or suffer through a single segment of "The Lighting Round."

Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return -- still short of an index fund.

Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it's not like golf: The spectators have a pretty good chance of humbling the pros.

Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time -- every single time -- there's even a hint of volatility, the same cry is heard from the investing public: "What is going on?!"

Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.

Since 1900 the S&P 500 (^GSPC) has returned about 6% per year, but the average difference between any year's highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.

Someone once asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. Truer words have never been spoken.

The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.

You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he'll receive, even though it makes him more likely to be wrong.

This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.

"Everything else is cream cheese."
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