Should a company’s culture influence your investing decisions?

Companies with happy employees may be more successful.

Companies with happy employees may be more successful.

While most individual investors understand the importance of reviewing a company's financial statements and performance history, few may be aware that its corporate culture can be just as crucial. In a Motley Fool article, analyst Brian Stoffel suggested that investing in companies that have higher employee satisfaction may yield better results. 

As evidence for his theory, Stoffel researched the performance of the top five publicly traded companies that were listed on Glassdoor.com's Top 50 Places to Work. The ranking is based on reviews and ratings of companies written by former and current employees. In 2009, these companies were General Mills, Netflix, Adobe, Whole Foods and Google. According to Stoffel's estimate, a $10,000 investment spread equally  across the five organizations would be worth $65,000 today. In contrast,  the same amount put into the S&P 500 would only be worth $20,400. 

So does this mean that we should base all of our future investing decisions on the opinions of employees? Stoffel's advice for using this kind of information is a bit more nuanced than you might think, based on further analysis. He said that it is best used when you are trying to decide between investing in similar companies. For example, if you wanted to buy stock in either Facebook or Twitter, he would advise you to choose the company with greater employee satisfaction on the basis that more customers will want to use the services competitors where employees seem happier. He notes that this reasoning may not make sense when comparing two different types of companies. 

Smart investing means taking all relevant information into consideration when making a decision. By using SmartStops' portfolio protection services, you can keep your risk to a minimum and stay apprised of changes in the market. 

About SmartStops

We are a new service launched to the market in July of 2008. Our mission - to help ensure stock and etf investors stay protected in their positions at all times. see www.smartstops.net

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