W h y s o m e c o m p a n I e s m a k e t h e
C u tb b : F r om Nineteen Companies to Eleven
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| C u tb b : F r om Nineteen Companies to Eleven t o - Great Companies We wanted to find companies that made a transition, not industries that made a transition merely being in the right industry at the right time would not qualify a company for the study. To separate industry transitions from company transitions, we decided to repeat the CRSP analysis for the remaining nineteen companies, only this time against a composite industry index rather than the general stock market. Companies that showed a transition relative to their industry would be selected for the final study set. For each of the remaining nineteen companies, we looked back in time via the industry composites and created an industry set of companies at the time of transition (within five years. We then acquired CRSP stock return data on all of the companies in the industry composite. If the company had multiple industry lines of business, we used two separate industry tests. We then created an industry cumulative returns index against which we plotted the cumulative returns for the transition company. This allowed us to identify and eliminate from the study any companies that did not show the transition pattern relative to their industry. Through industry analysis, we eliminated eight companies. Sara Lee, Heinz, Kellogg, CPC, and General Mills demonstrated a dramatic upward shift relative to the general stock market in about 1980, but none of these companies demonstrated a shift relative to the food industry. Coca-Cola and Pepsico demonstrated a dramatic upward shift relative to the general stock market in about 1960 and again in 1980, but neither demonstrated a shift relative to the beverage industry. We therefore ended up with eleven companies that made it through Cuts 1 through 4 and into the research study. Note At the time of initial selection into the study, three of the companies did not yet have a full fifteen years of cumulative stock data-Circuit City, Fannie Mae, and Wells We continued to monitor the data until they hit T + 15 years, to ensure that they would meet the "three times the market over fifteen years" standard of performance. All three did, and remained in the study) |