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InsiderOnline Blog: February 2011

How Crony Is Our Capitalism?

“What if there were some way to invest in companies that have a close relationship to the Obama administration?” asks Ira Stoll. He continues:

Suppose one began this strategy at the beginning of the Obama administration, buying one share of each publicly traded company with an executive appointed by the president on February 6, 2009 to the President's Economic Recovery Advisory Board. That would be UBS, GE, CAT, and ORCL. In the nearly two years since then (using the Monday February 7 closing prices, and using Yahoo! Finance historical price data that adjusts for splits and dividends), the gain would have been 145% — far outperforming the 52% return of the S&P 500 Index over the same period.

Suppose that later that year, you decided to buy one share of each American publicly traded company that had a top executive attend President Obama's first state dinner at the White House, in honor of Prime Minister Singh of India. GE and CAT are on the list again, along with Honeywell, Pepsi (CEO Indra Nooyi) and Ethan Allen (ETH) CEO Farooq Kathwari.The return through day's end February 7, 2011 would have been 46%, versus a 19% gain for the S&P 500 over the same period.

Or suppose you wanted to invest in the publicly traded companies whose executives President Obama appointed on July 7, 2010 to the President's Export Council. Buying UPS, Boeing, Met Life, Disney, Pfizer, Dow Chemical, Ford, Verizon, United Airlines, ADM, and Xerox would have earned a 30% return over a period in which the S&P 500 gained 24%.

Stoll goes on to note an exception: Morgan Stanley, Bank of America, UBS have together underperformed the S&P 500 by about 7 percentage points since their executives attended the May 19, 2010 state dinner for the president of Mexico. Still, the results are promising enough that Stoll plans to continue tracking companies whose executives are invited to Obama state dinners or are members of various boards that advise the President on economic policy. “And if they continue to outperform, perhaps we'll consider licensing the FutureOfCapitalism Crony Capitalist Index methodology ...” (See “Introducing the Crony Capitalist Index,” February 8, 2011.)

Posted on 02/14/11 01:53 PM by Alex Adrianson

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