The "Famous" Portfolio

Many of you are probably familiar with Malcolm Gladwell’s book “Blink,” about making snap decisions. The research behind much of that book was in Gerd Gigerenzer’s book “Gut Feelings: The Intelligence of the Unconscious.”

I just remembered something I read in that book - he created a stock portfolio of very well-known companies, and compared it to other portfolios, mostly from well-known analysts, etc. The “Famous” portfolio came out way ahead of almost all the others, and beat the average competing portfolio by quite a bit.

My guess is that quite a few investors tend to buy stocks of very well-known companies, and this tends to support a consistently higher share price. A lot of financial services professionals probably do the same thing for their clients. A lot of the companies recommended by MF are very well-known - Apple, Amazon, Google, Facebook, Starbucks, Nike, Under Armour, Disney, Netflix, Costco, Whole Foods, etc.

A less-known company could become well-known as its share price grows through customer and revenue growth. My contrarian inclination might be to find likely candidates for companies that will become famous. But I’d also be inclined to screen stocks of famous companies to see if I’m missing something.

Another argument for fame would be that it could create a stronger “floor” price when things go wrong. That seems to be the case for Under Armour recently, for instance.

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