MISSION INTANGIBLE

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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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2012: Year in Intellectual Property

C. HUYGENS - Tuesday, January 01, 2013
U.S. patent law experienced a significant number of changes in 2012, as the America Invents Act, new regulations, USPTO actions and court decisions all left an impact that will affect patent filings for years to come.

1. New rules created several new options for challenging granted patents, as well as a new process for third-party participation in patent application examination.

2. The USPTO opened its first satellite office, announced plans for several more, and increased the size of its examining corps by about 17%.

3. The Courts offered several significant decisions including a non-obvious definition of obviousness.

You will find details on the above as part of an excellent 2-part synopsis of changes in patent law on the blog of Jim Singer from the law firm of Fox Rothschild LLP, whom the Society thanks for its support through pro bono legal advice in intellectual property matters.

RepuStars 2012 December 29

C. HUYGENS - Saturday, December 29, 2012

Weekly Reputation Index Metrics


At the close of trading December 28, 2012, REPUVART and REPUVAR stood at 2776.17 and 2395.49 respectively. Over the past four weeks, the former has changed by 0.19%, while the latter has changed by -0.01%. The benchmark S&P500 Composite Index stood at 1191.19 (31 Dec 2001=1000) and has changed over the past four weeks by -0.97%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 22.56% and 20.66% respectively; the S&P500 Composite Index has changed by 11.52%. Since January 2009, the REPUVART and REPUVAR have changed by 144.19% and 127.92% respectively; the S&P 500 Composite Index has changed by 50.51%.

Other interval changes conforming to standard Wall Street reporting format are shown below.

Analysis

The world’s economies are looking rather promising, provided one looks past the spectre of political risk and the inability of democracies to govern. Equity markets, however, are event driven and fear is the emotion of the week as investors flock to safe assets and the VIX climbs. The markets shed value but for algorithms that bet on expectations such as RepuStars, the spread didn’t budge much.

This week, the spread on year-to-date returns between the S&P500 and the two RepuStars Variety Indexes calculated by S&P/Dow Jones Indexes is unchanged 10.85% for the price index and 12.74% for the total returns index. The returns are 20.66% and 22.56% respectively. Among the S&P500 companies, the spread between RepuStars-selected S&P500 (RepuSPX), a pocket index, and the S&P500 Composite decreased to 17.5% on decreased year-to-date return of 28.2%.

Turning to companies whose intangible assets, in terms of their cash-generating potential (Reputational Value), appear to have been undervalued at the start of this calendar year, the greatest gains in the 2012 RepuStars portfolio are being reported by Whirlpool Corporation (WHR), which remains in first place with a year-to-date return of 82.73%. Constellation Brands (STZ) remains in second with a year-to-date return of 63.43%. HollyFrontier (HFC) remains in the #3 position with a 58.89% return for the year. These are three of the 38 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out, the greatest disappointments this year remain the energy and mining concerns with the addition of Questcor Pharmaceuticals in the setting of a possible ethics scandal and Justice Department probe. To date, the bottom three are are Federal-Mogul Corporation (FDML) at -53.03%, Walter Energy, Inc. (WLT) at -49.06%, and Questcor (QCOR) at -26.42.

Side Note: A description of the 2012 portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.


Background

The RepuStars® Variety Corporate Reputation Index calculated by S&P/Dow Jones Indexes is the first-ever composite equity index based on a quantitative value strategy informed by the Steel City Re Reputational Value Metrics. The metrics comprise non-financial indicators of reputational value (RVM) and ranking (CRR). The RepuStars Variety Index has two versions: a total returns index and a price index, whose ticker symbols are, respectively, REPUVART and REPUVAR.  Click here for real time quotes.

The RepuStars Variety Corporate Reputation Index tracks up to 57 company stocks that appear to be underpriced relative to  Steel City Re’s proprietary Reputational Value Metrics™, which track 7400 companies weekly. The principles behind measuring reputational value are describe in the book, Reputation, Stock Price, and You (2012, Apress).

The RepuStars indices are reconstituted annually in the first week of January and posted by S&P/Dow Jones Indexes in the third week. The Indices were last reconstituted 20 Jan 2012.

Reputation, Risk and Finance

Reputation management through superior control of a company's intangible assets may be one of the best paths to value creation today. If it is not on your agenda, perhaps it should be. Here are several things you can do right now to start creating value for your organization:

1. Become better informed. Participate in our regular Mission Intangible Monthly Briefings held on the second Friday of every month, read the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (2012)  or its predecessor, Mission: Intangible. Managing risk and reputation to create enterprise value (2010), available at the IAFS Store, specialty finance sector retailers, or other leading online book retailers
2. Become a member of the Intangible Asset Finance Society and engage.
3. Join our community on Linked-In and stay in the information flow.

Notices

Standard & Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”), a subsidiary of The McGraw-Hill Companies, Inc. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). “RepuStars” and “Steel City Re” are registered trademarks of C. Huygens & Co. LLC. The method underpinning the RepuStars Variety indexes is subject to a pending patent assigned to C. Huygens & Co. LLC. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates (“S&P Dow Jones Indices”) makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P Dow Jones Indices shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. Past performance of an index is not an indication of future results. All information provided by S&P Dow Jones Indices is general in nature and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments offered by third parties that are based on that index. S&P Dow Jones Indices does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that seeks to provide an investment return based on the performance of any Index. Investment products based on the RepuStars Variety Corporate Reputation Indexes are not sponsored, endorsed, sold or promoted by Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC, or their respective affiliates and none of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC and their respective affiliates make any representation regarding the advisability of investing in such products. Inclusion of a company in any of the indexes in this piece does not in any way reflect an opinion of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates on the investment merits of such company. None of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates is providing investment advice in connection with these indexes.

RepuStars: Period risks and returns

C. HUYGENS - Wednesday, December 26, 2012
RepuStars Variety (Ticker: REPUVAR) is a composite equity index that demonstrates in stark quantitative terms the informational content of the Steel City Re Reputational Value Metrics. The index comprises up to 57 companies whose RVM and CRR, reputational metrics calculated by Steel City Re, suggest that their stock prices are unreasonably low and that within the coming year, the equity markets should rectify the discrepancy with what must be, of necessity and provided the informational content of the metrics is valid, above average returns.

Each week, the value of REPUVAR, REPUVART, and a pocket index RepuSPX are reported in a standard form. Today, as we approach the end of the 11th year of collecting reputational metrics on a pool that has grown to more than 7400 companies, the index returns as of Friday 21 December 2012 are reported in conventional "Wall Street" form with select monthly and yearly returns.

The theory behind RepuStars is explained in greater detail in the book, Reputation, Stock Price, and You: Why the market rewards some companies and punishes others. The data speak for themselves.

RepuStars 2012 December 22

C. HUYGENS - Saturday, December 22, 2012

Weekly Reputation Index Metrics


At the close of trading December 21, 2012, REPUVART and REPUVAR stood at 2776.17 and 2395.49 respectively. Over the past four weeks, the former has changed by 3.10%, while the latter has changed by 2.89%. The benchmark S&P500 Composite Index stood at 1191.19 (31 Dec 2001=1000) and has changed over the past four weeks by 1.49%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 22.63% and 20.72% respectively; the S&P500 Composite Index has changed by 13.03%. Since January 2009, the REPUVART and REPUVAR have changed by 148.52% and 132.01% respectively; the S&P 500 Composite Index has changed by 53.48%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

This was a week driven by macroeconomic news with optimism suffering only near the end of the week. For algorithms that bet on expectations such as RepuStars, this was a net positive week of more than 150 basis points.

This week, the spread on year-to-date returns between the S&P500 and the two RepuStars Variety Indexes calculated by S&P/Dow Jones Indexes is up to 10.84% for the price index and 12.74% for the total returns index. The returns are 22.83% and 24.73% respectively. Among the S&P500 companies, the spread between RepuStars-selected S&P500 (RepuSPX), a pocket index, and the S&P500 Composite increased to 18.4 on increased year-to-date return of 31.1%.

Turning to companies whose intangible assets, in terms of their cash-generating potential (Reputational Value), appear to have been undervalued at the start of this calendar year, the greatest gains in the 2012 RepuStars portfolio are being reported by Whirlpool Corporation (WHR), which remains in first place with a year-to-date return of 87.08%. Constellation Brands (STZ) remains in second with a year-to-date return of 67.38%. HollyFrontier (HFC) remains in the #3 position with a 67.16% return for the year. These are three of the 38 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out, the greatest disappointments this year remain the energy and mining concerns with the addition of Questcor Pharmaceuticals in the setting of a possible ethics scandal and Justice Department probe. To date, the bottom three are are Federal-Mogul Corporation (FDML) at -53.33%, Walter Energy, Inc. (WLT) at -48.44%, and Questcor (QCOR) at -17.87.
Side Note: A description of the 2012 portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

The RepuStars® Variety Corporate Reputation Index calculated by S&P/Dow Jones Indexes is the first-ever composite equity index based on a quantitative value strategy informed by the Steel City Re Reputational Value Metrics. The metrics comprise non-financial indicators of reputational value (RVM) and ranking (CRR). The RepuStars Variety Index has two versions: a total returns index and a price index, whose ticker symbols are, respectively, REPUVART and REPUVAR.  Click here for real time quotes.

The RepuStars Variety Corporate Reputation Index tracks up to 57 company stocks that appear to be underpriced relative to  Steel City Re’s proprietary Reputational Value Metrics™, which track 7400 companies weekly. The principles behind measuring reputational value are describe in the book, Reputation, Stock Price, and You (2012, Apress).

The RepuStars indices are reconstituted annually in the first week of January and posted by S&P/Dow Jones Indexes in the third week. The Indices were last reconstituted 20 Jan 2012.

Reputation, Risk and Finance

Reputation management through superior control of a company's intangible assets may be one of the best paths to value creation today. If it is not on your agenda, perhaps it should be. Here are several things you can do right now to start creating value for your organization:

1. Become better informed. Participate in our regular Mission Intangible Monthly Briefings held on the second Friday of every month, read the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (2012)  or its predecessor, Mission: Intangible. Managing risk and reputation to create enterprise value (2010), available at the IAFS Store, specialty finance sector retailers, or other leading online book retailers
2. Become a member of the Intangible Asset Finance Society and engage.
3. Join our community on Linked-In and stay in the information flow.

Notices

Standard & Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”), a subsidiary of The McGraw-Hill Companies, Inc. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). “RepuStars” and “Steel City Re” are registered trademarks of C. Huygens & Co. LLC. The method underpinning the RepuStars Variety indexes is subject to a pending patent assigned to C. Huygens & Co. LLC. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates (“S&P Dow Jones Indices”) makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P Dow Jones Indices shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. Past performance of an index is not an indication of future results. All information provided by S&P Dow Jones Indices is general in nature and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments offered by third parties that are based on that index. S&P Dow Jones Indices does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that seeks to provide an investment return based on the performance of any Index. Investment products based on the RepuStars Variety Corporate Reputation Indexes are not sponsored, endorsed, sold or promoted by Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC, or their respective affiliates and none of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC and their respective affiliates make any representation regarding the advisability of investing in such products. Inclusion of a company in any of the indexes in this piece does not in any way reflect an opinion of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates on the investment merits of such company. None of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates is providing investment advice in connection with these indexes.

Moody's and S&P: Mission:Irrelevance

C. HUYGENS - Friday, December 21, 2012
The intangible asset of interest is quality, and the problem  -- according to Blackrock (BLK) -- is that it's missing. Bloomberg reported yesterday that "Credit rating companies are distorting capital markets by assigning the same debt ranking to countries from Italy to Thailand and Kazakhstan, according to BlackRock Inc. (BLK), the world’s biggest money manager...For BlackRock, which oversees $3.7 trillion in assets, the measures are so untrustworthy that the firm is setting up its own system to gauge the risk of investing in government bonds."

The ratings agencies generate a product that customers do not value, or even trust. As we shared before, the regulators are upset that the product is distorting markets. The book Reputation, Stock Price and You: why the market rewards some companies and punishes others, explains how one of the cardinal signs of a reputational value crisis is when stakeholders turn on you. Watch this one closely.

HSBC v UBS: Brother, where 'art thou?

C. HUYGENS - Thursday, December 20, 2012
Corruption. Rogue trading. Libor. Foreign corrupt practices. Billion dollar penalties and fines. Just another day on Wall Street. Compare and contrast, if you will, HSBC and UBS. Pictures comprising select images reporting Steel City Re Reputational Value Metrics speak louder than mere words. RVM is a non-financial measure of reputational value; CRR is a measure of relative reputational ranking. Peer group comprises 251 financial/banking institutions. (For more background, read: Reputation, Stock Price and You: Why the market rewards some companies and punishes others (2012, Apress).

Moody's and S&P: Spinning yarn

C. HUYGENS - Tuesday, December 18, 2012
Chanel used to say, ‘If a woman walks into a room and people say, “Oh, what a marvellous dress,” then she is badly dressed. If they say, “What a beautiful woman,” then she is well- dressed.’ S&P & Moody's similarly, provide the service of adorning countries with ratings that, in the ideal, make them attractive to investors. Look at the country, not the rating, they would say. Unfortunately, the ratings agencies lately have been attracting far too much attention to themselves.

Japan’s Financial Services Agency last week said it ordered S&P’s Japan unit to improve its system for verifying and updating ratings. In November, an Australian judge ruled S&P misled investors by giving its highest ratings to securities whose value plunged during the global financial crisis. Yesterday, Bloomberg reports that this year's ratings calls missed market movement more often than they concurred. "Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of the 32 upgrades, downgrades and changes in credit outlook, according to data compiled by Bloomberg. That’s worse than the longer-term average of 47 percent, based on more than 300 changes since 1974. This year, investors ignored 56 percent of Moody’s rating and outlook changes and 50 percent of those by S&P." 

In 1909 John Moody had a good story. Access to information was slow and expensive, and the cost of ignorance was evident in the losses of the 1907 market crash. Today, the rating agencies' story is being blamed, in part for the losses of the 2008 market crash. One would expect reputational value consequences, and yet...

The Steel City Re Reputational Value Metrics show that Moody's ranking is at the median and trending up, while its return on equity is already the top percentile among 15 financial publishing peers. Current volatility of RVM, a non-financial measure of reputational value, is very low. The vital signs present an odd mix of data. Is Moody's making up for lost ground, or have investors gone whacky? Things are not in balance raising the question: Will the the story morph into the fable, "The emperor's new clothes?"


RepuStars 2012 December 15

C. HUYGENS - Saturday, December 15, 2012

Weekly Reputation Index Metrics


At the close of trading December 14, 2012, REPUVART and REPUVAR stood at 2776.17 and 2395.49 respectively. Over the past four weeks, the former has changed by 6.04%, while the latter has changed by 5.96%. The benchmark S&P500 Composite Index stood at 1191.19 (31 Dec 2001=1000) and has changed over the past four weeks by 3.95%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 25.09% and 23.28% respectively; the S&P500 Composite Index has changed by 15.90%. Since January 2009, the REPUVART and REPUVAR have changed by 144.90% and 128.94% respectively; the S&P 500 Composite Index has changed by 51.70%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

In a relatively unusual development, China’s economy appears to be perking up, Germany and the UK are looking good, and now the US that is succumbing to fear over the fiscal cliff. Evidence: The VIX is up. For algorithms that bet on expectations such as RepuStars, this was a net positive week of around 100 basis points on the basis of improved global opportunities.

This week, the spread on year-to-date returns between the S&P500 and the two RepuStars Variety Indexes calculated by S&P/Dow Jones Indexes is up to 10.51% for the price index and 12.23% for the total returns index. The returns are 21.20% and 22.92% respectively. Among the S&P500 companies, the spread between RepuStars-selected S&P500 (RepuSPX), a pocket index, and the S&P500 Composite decreased to 17.1 on decreased year-to-date return of 27.9%.

Turning to companies whose intangible assets, in terms of their cash-generating potential (Reputational Value), appear to have been undervalued at the start of this calendar year, the greatest gains in the 2012 RepuStars portfolio are being reported by Whirlpool Corporation (WHR), which remains in first place with a year-to-date return of 84.72%. Constellation Brands (STZ) remains in second with a year-to-date return of 67.86%. HollyFrontier (HFC) returns to the #3 position with a 65.42% return for the year. These are three of the 38 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out, the greatest disappointments this year remain the energy and mining concerns with the addition of Questcor Pharmaceuticals in the setting of a possible ethics scandal and Justice Department probe. To date, the bottom three are are Federal-Mogul Corporation (FDML) at -56.10%, Walter Energy, Inc. (WLT) at -43.95%, and Questcor (QCOR) at -24.18.
Side Note: A description of the 2012 portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

The RepuStars® Variety Corporate Reputation Index calculated by S&P/Dow Jones Indexes is the first-ever composite equity index based on a quantitative value strategy informed by the Steel City Re Reputational Value Metrics. The metrics comprise non-financial indicators of reputational value (RVM) and ranking (CRR). The RepuStars Variety Index has two versions: a total returns index and a price index, whose ticker symbols are, respectively, REPUVART and REPUVAR.  Click here for real time quotes.

The RepuStars Variety Corporate Reputation Index tracks up to 57 company stocks that appear to be underpriced relative to  Steel City Re’s proprietary Reputational Value Metrics™, which track 7400 companies weekly. The principles behind measuring reputational value are describe in the book, Reputation, Stock Price, and You (2012, Apress).

The RepuStars indices are reconstituted annually in the first week of January and posted by S&P/Dow Jones Indexes in the third week. The Indices were last reconstituted 20 Jan 2012.

Reputation, Risk and Finance

Reputation management through superior control of a company's intangible assets may be one of the best paths to value creation today. If it is not on your agenda, perhaps it should be. Here are several things you can do right now to start creating value for your organization:

1. Become better informed. Participate in our regular Mission Intangible Monthly Briefings held on the second Friday of every month, read the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (2012)  or its predecessor, Mission: Intangible. Managing risk and reputation to create enterprise value (2010), available at the IAFS Store, specialty finance sector retailers, or other leading online book retailers
2. Become a member of the Intangible Asset Finance Society and engage.
3. Join our community on Linked-In and stay in the information flow.

Notices

Standard & Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”), a subsidiary of The McGraw-Hill Companies, Inc. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). “RepuStars” and “Steel City Re” are registered trademarks of C. Huygens & Co. LLC. The method underpinning the RepuStars Variety indexes is subject to a pending patent assigned to C. Huygens & Co. LLC. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates (“S&P Dow Jones Indices”) makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P Dow Jones Indices shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. Past performance of an index is not an indication of future results. All information provided by S&P Dow Jones Indices is general in nature and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments offered by third parties that are based on that index. S&P Dow Jones Indices does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that seeks to provide an investment return based on the performance of any Index. Investment products based on the RepuStars Variety Corporate Reputation Indexes are not sponsored, endorsed, sold or promoted by Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC, or their respective affiliates and none of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC and their respective affiliates make any representation regarding the advisability of investing in such products. Inclusion of a company in any of the indexes in this piece does not in any way reflect an opinion of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates on the investment merits of such company. None of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates is providing investment advice in connection with these indexes.

WMT v TGT: Fall 2012 Edition

C. HUYGENS - Thursday, December 13, 2012
With less than two weeks of shopping before Christmas, Huygens thought it would be interesting to return to an perennial favorite--the rivalry between Walmart (WMT) and Target (TGT). When last compared in the spring of 2012, Target was leading Walmart in all indicators of Steel City Re's Reputaitonal Value Matrics signaling reputational value growth. The volatilityy of Historic and current RVM's, non-financial measures of reputational value, were both elevated for Target. Also, the CRR, a measure of relative reputaitonal ranking, was higher as was ROE. The forecast, on the other hand, suggested more change in store for Walmart with indicators pointing to a reduction in CRR. And so it came to pass as Walmart spent the balance of the year wrestling with a number of labor and ethical scandals.

Turning to a face-off of the most recent metrics among a custom peer group of 125 retail stores, and Targets CRR has risen only slightly from the 87th percentile to the 90th. And while Walmart's reputational metrics were more volatile and trended negative in the late spring, by early summer, the measures changed course and the company's reputation climbed to its current CRR in the 89th percentile. The ROE, not surprisingly, outperformed Target's returns with rankings in the 57th and 47the percentiles, respectively. Interestingly, as the chart below row 1 column 2 shows, Walmart's RVM volatility is countercyclical to both Target, the industry median and somewhat so relative to the CBOE VIX, better known at the "fear index."

Forecasting for next time, the measures again show less stability for Walmart and a negative CRR. Stay tuned through Spring 2013 when we'll present the next installment of WMT v TGT.

McDonald's: Receives a break

C. HUYGENS - Tuesday, December 11, 2012
The Wall Street Journal reported yesterday that McDonald's Corp. (MCD) surprised investors by reporting higher November sales. Analysts, according to the Journal, remain cautious about the months ahead. Credit for the gain goes to the Company's Dollar Menu which "helped reverse a downward slide from the month before, when McDonald's posted the first drop in monthly same-store sales in nine years. Same-store sales globally rose 2.4% in November, fueled by a 2.5% rise in U.S. same-store sales. Analysts were expecting sales to be flat around the world."

McDonald's can afford to deliver its Dollar Menu because the company runs one of the best supply chains in the world. As described in Reputation, Stock Price, and You, "[McDonald's] approach to its relationship with suppliers reflects its ethical culture and the innovations Kroc brought to the business." Among the benefits of the Company's strategy are net lower costs--benefits the suppliers grant McDonald's that we now call reputaitonal value.

Turning to the Steel City Re Reputational Value Metrics, the improved returns are obviously welcomed, but are less surprising. For the trailing twelve months, McDonald's has steadily ranked #1 among the 64 companies in the Restaurant and Fast Food Franchisers sector.


Weighing in at more than twice the size of its closest competitor, YUM! Brands, the company has to work much harder to grow. However, its phenomenal operational controls mitigate risks that might cause it to stumble, so when its CRR--a measure of relative reputational ranking-- hugs the #1 spot for a year while its ROE plummets, one can reasonably expect a turnaround. The data forecast a steady state for McDonald's with respect to key reputational metrics, the RVM and the CRR. And so while Yum! enters a turbulent reputational period, expect McDonald's equity investors to relax and return to the fold.



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