An little something you might be interested in having a look over. Love Your Dogs (may need free registration) comes courtesy of Booz Allen Hamilton, the management consultants. And their basic hypothesis is rather intriguing.
Looking at stock market performance over the last 30 years, they demonstrate the surprising and counter-intuitive conclusion that popular 'star' shares consistently under perform the market, whilst poorly regarded 'dog' shares consistently over perform (the so called 'Dogs of the Dow' theory). And yet people (including supposed experts) continue to invest in the 'stars'
Two reasons are given for this: 1) that past performance is all too often assumed to be an indicator of future performance - it isn't (which is also why purchase intention questions in research can be so misleading) and 2) that it is often harder, and more expensive, to get incremental value out of something that it is already performing well.
Based on these findings, they ask whether the same thinking can be applied to companies: do we over invest in 'star' businesses and brands, and under invest in, or divest ourselves of perceived 'dogs'? And would business performance improve if this policy was reversed?
They don't have any direct and systematic analysis to support this hypothesis. But it is an interesting and provocative idea. And maybe some positive proof is offered by the 'underperforming' brands big companies sell off, which come back to haunt them when new owners do a spot of investing.
