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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Reputation: Lost in translation

C. HUYGENS - Tuesday, July 16, 2013
While losses in translation can be funny, there is a dark side. Last January, the press circulated a story about the British tourist who said he was going to "destroy America," meaning he was going to party hard. Homeland Security took the threat seriously.

The current government misunderstanding, involving liquidity risk and reputation, is causing grief on sources of revenue while missing the point about liquidity risk mitigation involving an estimated $800 billion in contingent capital. As described in the linked article from Forbes magazine earlier this month, senior regulators are misinterpreting ‘reputation’ in its lay sense of ‘likability.’ Regulators are suggesting banks avoid doing business with entities that may not be ‘likeable.’

However, as the term is employed in the Federal Reserve’s Interagency Policy Statement on Funding and Liquidity Risk Management (March 17, 2010), the term is used in its psychology sense as an ‘expectation of behavior.’ It's the meaning of ‘reputation’ Alan Greenspan intended when he explained that in a market based on trust, reputation has significant value. It's the meaning captured in the metrics from Steel City Re and Consensiv.

The Policy Statement (download here) recommends that to “mitigate the potential for reputation contagion, effective communication with counterparties, credit-rating agencies, and other stakeholders when liquidity problems arise is of vital importance...In addition, groupwide contingency funding plans, liquidity cushions, and multiple sources of funding are mechanisms that may mitigate reputation concerns.”

Expectation management, in other words, should be a combination of effective communication and authentic reliable sources of contingent capital. If counterparties expect that there will be no liquidity problem, they will not panic and trigger a bank run that will precipitate a liquidity crisis. This is a matter of balance sheet transparency. Likeability has no role here.

Boeing: In Fear of a BP Moment

C. HUYGENS - Sunday, July 14, 2013
On Friday, January 13, fire on an Ethiopian Airlines Boeing 787 at Heathrow Airport in London and a separate technical problem on a second 787 owned by Britain's Thomson Airways raised new questions about an aircraft seen as crucial to Boeing's future. Boeing said it had people on the ground working to understand the causes of the fire.

Have we seen this movie before? In the early days after the Deepwater Horizon explosion in the spring of 2010, then-BP CEO Tony Hayward provided this assurance. "I think the environmental impact of this disaster is likely to have been very, very modest." Trust us, he said, to get this under control.

For weeks, BP benefited from the doubt, and its image of environmental concern built up through a major investment in marketing and communications. Surely, a firm that is beyond petroleum will successfully protect the environment.

Of course, talking about protecting the environment while allegedly cutting back on investments in processes that actually protect the environment is a recipe for a modern-day reputational crisis. And so it came to pass that stakeholder disappointment in the eventual outcome, forced by reality trumping hope, was expensive for BP, its CEO, the board, and investors. (See detailed case study in Reputation, Stock Price and You.)

Enter Boeing, a highly reputable aerospace and defense manufacturer that has had a string of significant problems with the 787 Dreamliner, most recently being fires associated with the aircraft’s batteries. It is also a firm whose cost-saving strategy for 787 production produced a three-year delay, the ire of its unions, and allegations of cutting corners.

At the 20 May resumption of flights by United Airlines after the FAA-ordered stand-down, and nearly three years to the day after Hayward’s comments, Boeing CEO James McNerney said, “We are very sorry about the delay that was caused by some of the technology work-arounds that we had to implement. But,” he added, “the promise of this airplane remains unchanged. We are confident of that. More importantly, we are confident in the safety of this aircraft. Safety means everything to us. It’s in our DNA.” Trust us, he said.

“I trust Boeing that they know what they are doing,” said a Flight 1 passenger to Bloomberg. And the reputational value metrics, shown below as of Thursday, 11 July, affirm the return in trust. CRR, a measure of reputational value premium, is up. Current RVM volatility, a measure of consensus trend or stakeholder concurrence, is more favorable (down). So on Friday, 12 July, when another Boeing 787 caught fire, stakeholders were surprised. Equity investors registered their surprise by shaving 5% off the stock price. On Sunday, Bloomberg reports, In the early stages of the investigation, airlines said they would continue to fly their Dreamliners, while others confirmed they would stick to their plans to buy the aircraft. Jonathan Salem Baskin, Mission Intangible Monthly Briefing moderator, explains on CNBC how other stakeholders may respond to this latest surprise. Click here.

RepuStars 2013 July 13

C. HUYGENS - Saturday, July 13, 2013

Weekly Reputation Index Metrics


At the close of trading July 12, 2013, REPUVART and REPUVAR stood at 3334.37 and 2820.62 respectively. Over the past four weeks, the former has changed by 2.92%, while the latter has changed by 2.82%. The benchmark S&P500 Composite Index stood at 1421.41 (31 Dec 2001=1000) and has changed over the past four weeks by 3.29%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 26.43% and 23.95% respectively; the S&P500 Composite Index has changed by 23.84%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 73.51% and 65.50% respectively; the S&P 500 Composite Index has changed by 53.39%.

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

Analysis

The Financial Times said it best. “Like tipsy drinkers, financial markets are seeing the world upside down. Bad economic news is good news if it means more central bank action to support growth. Good news that means central banks may withdraw the punchbowl is bad news.” Witness the fabulous performance of the S&P500 this week after Ben Bernanke, US Federal Reserve chairman stressed he was still far from tightening monetary policy.

RepuSPX, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is ahead of the market index for the calendar year by 13.35% this week at 28.13%. Its trailing twelve-month return of 30.63% is beating the market by 4.75%.

On the other hand, RepuStars increased its spread loss for the year to date. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME), which holds on to first place with returns of 74.07%, Wellpoint Inc (WLP) which holds onto second place with returns of 44.04%, and Bed Bath & Beyond returns to third place with year to date returns of 34.87%. These are three of the 19 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 so far, Royal Gold Inc. (RGLD) is up slightly at -46.83%, scandal-plagued VeriFone Systems Inc. (PAY) is up at -42.39%, and Fusion I-O is showing less of a loss of -34.12%.

Side Note: A description of the 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 described in the book, Reputation, Stock Price, and You: Why the market rewards some companies and punishes others (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.

Reputation: Expectation, expectation, expectation

C. HUYGENS - Wednesday, July 10, 2013
Suspend for a moment the long held (mis)understanding of reputation as an affinity, and recast the word as an expression of forward-looking expectations. Suddenly, behaviors that seemed bizarre are patently rational. Follow Mission Intangible Monthly Briefing moderator Jonathan Salem Baskin as he drives this point home in Forbes magazine over the tawdry Paula Deen affair, and the even more tawdry marketing strategy of Abercrombie and Fitch.

Southwest Airlines: Reputation matters

C. HUYGENS - Tuesday, July 09, 2013
In the movie, Crazy People, a bitter ad executive who has reached his breaking point, finds himself in a mental institution. There, his career actually begins to thrive with the help of the hospital's patients who produce such memorable campaigns such as the one for United Airlines which went: "Your fear of flying may be valid. There are always plenty of plane crashes and people die like crazy. But you should also know that more people arrive at their destinations alive on our flights than on many others. So, if you have to fly, fly us. UNITED. Most of our passengers get there alive".

Gallows humor? Perhaps, in the context of Asiana Airlines Flight 214, a 777 jet carrying passengers from Seoul, South Korea, that crashed at San Francisco's SFO airport on Saturday. The aircraft has had a great reputation for safety; the carrier less so. The Wall Street Journal says, "While the causes of the crash remain under investigation, Asiana's reputation has likely taken a hit in China, its second-biggest market in the region outside of Korea, say analysts."

Reputation for what? In Forbes magazine today, Jonathan Salem Baskin, Mission Intangible Monthly Briefing moderator, makes it clear that affinity is not the basis of reputation. Rather, it is the willingness of stakeholders to take actions that at the end create significant value for the company. The Economist made the same point last year, "Everybody bashes Ryanair for its dismal service and the Daily Mail for its mean-spirited journalism. But both firms are highly successful. ... the best strategy may be to think less about managing your reputation and concentrate more on producing the best products and services you can.”

It should therefore not come as a surprise that Ryanair is still near the top of the airline league table as reflected by the Steel City Re reputation metrics and the firms' reputation premium. Asiana, because it is not traded on a major Western exchange, is not rated.

Across the pond, what does a well-regarded American airline look like? Southwest Airlines, ranked #8, is a large carrier that distinguishes itself through a quirky service platform and dedicated employees. Customers who fly the carrier look forward to the experience.

Turning from the subjective to more detailed objective (algorithmic) metrics from Steel City Re, as of July 3, a few days before Asiana's crash, Southwest's ranking at the 84th percentile (reputation premium) is backed by a very low current RVM volatility (Consensus Trend) indicating near unanimity about the firm's reputation. Economically, the firm has been trailing the median of its peers ranking only in the 27th percentile. And with regards to safety, it has a fabulous record. Most of its passengers, indeed, get there alive. In light of its rising reputation ranking, the metrics suggest the firm is undervalued.


Corporate Boards: Charge them with the usual crimes

C. HUYGENS - Monday, July 08, 2013
The CEO may be getting big bucks. Moreover, in the US, they're getting bigger notwithstanding efforts at France-inspired salary caps. But when it comes to where the buck stops, ground zero appears to be the boardroom. Last month, the Financial Times published a story by Peter Whitehead titled, Company disasters – boards are to blame. The article was accompanied by a somber promotional video clip from the consultancy, Reputability, embedded below, explaining why.

In a spirited discussion on the Boards and Advisors LinkedIn group triggered by the article, it was flatly alleged "...that - even with non-performance of management - boards must be to blame, by their very nature and power. There are no flawed companies, only flawed boards. Boards are responsible for everything - management selection, strategy approval, risk oversight, compensation setting, etc. Boards can't argue "we missed it" because increasingly regulators are saying we will hold you responsible if you do miss it because it is your responsibility to know and not to miss. So institute systems and reporting so you do not, and replace management if need be."

Huygens is all for rounding up the usual suspects and charging them with the usual crimes, but he's not sure this is the best path to improved operations, superior governance, or better risk management. Nor a particularly good route to value creation.

Blame for most company failures will concentrate in the boardroom, with a serious skills gap and risk blindness of Board members being the most common allegations. That is why company crises become personal reputational matters for Board members, and why management and insurance solutions that help Board members combat these allegations, reputation risks, are now in great demand.

However, operational risks and reputational risks can be bifurcated. Data show that a reputational crisis is not a necessary consequence of an operational crisis provided that the Board has made a reasonable concerted effort to anticipate and mitigate the risk. And that stakeholders are aware of the effort and are able to appreciate and value it.

Warren Buffet would approve. Remember, he would forgive a financial loss; not a reputational loss.

Boards can be forgiven just as Jamie Dimon was forgiven.  What is helpful is having an established track record, a reputation, that can counter allegations of incompetence etc. This is a strategy Board members concerned about their personal reputations would do well to understand as they seek personal reputation protection solutions.

RepuStars 2013 July 6

C. HUYGENS - Saturday, July 06, 2013

Weekly Reputation Index Metrics


At the close of trading July 5, 2013, REPUVART and REPUVAR stood at 3334.37 and 2820.62 respectively. Over the past four weeks, the former has changed by -1.00%, while the latter has changed by -1.10%. The benchmark S&P500 Composite Index stood at 1421.41 (31 Dec 2001=1000) and has changed over the past four weeks by -0.70%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 20.11% and 17.75% respectively; the S&P500 Composite Index has changed by 19.33%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 77.69% and 69.34% respectively; the S&P 500 Composite Index has changed by 58.73%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 19.32% and 16.99% respectively; the S&P500 Composite Index has changed by 17.92%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 74.14% and 65.86% respectively; the S&P 500 Composite Index has changed by 54.27%.

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

Analysis

The US markets comprise an unusually calm island of economic promise in a sea of European, Latin American, Asian, and Mid-East uncertainty. The benefits of unexpected safe haven status are unexpected demand for securities and equity appreciation. Witness the ongoing fabulous performance of the S&P500.

RepuSPX, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is ahead of the market index for the calendar year by 13.02% this week at 23.71%. Its trailing twelve-month return of 24.42 % is beating the market by 5.09%.

On the other hand, RepuStars increased its spread loss for the year to date. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME), which holds on to first place with returns of 73.35%, Wellpoint Inc (WLP) which holds onto second place with returns of 38.24%, and Bed Bath & Beyond returns to third place with year to date returns of 27.87%. These are three of the 19 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 so far, Royal Gold Inc. (RGLD) is down further still at -47.32%, scandal-plagued VeriFone Systems Inc. (PAY) is at -45.14%, and Fusion I-O is showing a loss of -37.29%.

Side Note: A description of the 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 described in the book, Reputation, Stock Price, and You: Why the market rewards some companies and punishes others (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.

That Would be Reputation Risk, Stan

C. HUYGENS - Thursday, July 04, 2013
In the comedy film, Miss Congeniality, Sandra Bullock plays a no-nonsense FBI agent working undercover as a beauty contestant. She is offended by the required vapidness of her cover identity. “I’m not gonna parade around in a swimsuit like some airhead bimbo that goes by the name Gracie Lou Freebush and all she wants is world peace?”

In a later scene she finds herself in the Q & A round of the beauty pageant, facing the exact situation she was dreading: "What is the one most important thing our society needs," asks the emcee, William Shatner's Stan Fields. Bullock thoughtfully replies, "That would be harsher punishment for parole violators, Stan." The audience is silent. Bullock mounts a plastic smile and cynically adds "…and world peace." The audience explodes in applause.

Fun watching: World Peace Clip

As public companies file their 10K's again this year, how will they answer the question, "What is the one most important risk facing our companies?" Will they say, "That would be reputation risk, Stan?" And more important, if the response is to be more than canned or vapid, what are the reputation risk disclosers going to do about it?

It depends. If they view reputation in the context of marketing and brand, then they may increase the IR budget, the PR budget or buy crisis communications insurance. But that would be misguided. And according to the advisory firm, Consensiv, wasteful.

If the above sounds odd, then please suspend for a moment the lay understanding of "reputation" -- a variant of brand -- and assume the following definition of its risk courtesy of the reputation insurer, Steel City Re: the threat to enterprise value when myriad stakeholders perceive that corporate behavior violates their expectations. It is not a PR problem; it is an issue of governance and control.

Cutting to the chase, reputation risk management requires a bold new understanding of reputation risk. A comprehensive solution needs to (1) provide superior governance controls; (2) exculpate the Directors and Officers, (3) allow stakeholders to appreciate and value a company’s business controls, and (4) indemnify the company for reputational value losses.

RepuStars 2013 June 29

C. HUYGENS - Saturday, June 29, 2013

Weekly Reputation Index Metrics


At the close of trading June 28, 2013, REPUVART and REPUVAR stood at 3330.15 and 2817.41 respectively. Over the past four weeks, the former has changed by -2.22%, while the latter has changed by -2.41%. The benchmark S&P500 Composite Index stood at 1399.10 (31 Dec 2001=1000) and has changed over the past four weeks by -1.50%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 19.32% and 16.99% respectively; the S&P500 Composite Index has changed by 17.92%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 74.14% and 65.86% respectively; the S&P 500 Composite Index has changed by 54.27%.

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

Analysis

What’s to say? The equity markets are being driven by expectations of changes, or lack of changes, in the Fed’s policies on quantitative easing. The world economy is addicted to credit and the markets seem hyper-aware.

RepuSPX, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is ahead of the market index for the calendar year by 12.00% this week at 22.54%. Its trailing twelve-month return of 33.61% is beating the market by 12.75%.

On the other hand, RepuStars increased its spread loss for the year to date even as it remains a bit ahead for the trailing twelve months. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME), which holds on to first place with returns of 69.48%, Wellpoint Inc (WLP) which holds onto second place with returns of 38.03%, and Bed Bath & Beyond returns to third place with year to date returns of 24.69%. These are three of the 19 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 so far, Royal Gold Inc. (RGLD) is down further still at -46.94%, scandal-plagued VeriFone Systems Inc. (PAY) is at -45.48%, and Fusion I-O moved up to a loss of “only” -35.48%.

Side Note: A description of the 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 described in the book, Reputation, Stock Price, and You: Why the market rewards some companies and punishes others (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.

Carnival Corp: Executive shore leave

C. HUYGENS - Thursday, June 27, 2013
Carnival Corporation, the vacation experience company, as been having a bad run of shows. Eighteen months ago, a ship in its Costa Crociere family ran aground with loss of life. Last week, that company's President, Gianni Onorato, left the company with immediate effect to "pursue a new career direction."

In February of this year, a ship in the parent company's portfolio lost power and drifted in the Gulf of Mexico for a few days. The rescue by by the US Navy and Coast Guard made for excellent TV fodder.

Passengers from both the Costa Concordia and the Carnival Triumph are unlikely to recommend the product to their friends, and the proof is that bookings for this year have fallen behind 2012 levels, even as its cruise fares have moved lower in a bid to win back wary travelers. Bloomberg reported that "Some three-night Carnival cruises are selling from prices as low as $209. Five nights? Those have sold for as little as $249. A seven-night Caribbean cruise in August? Yours for $369, if you don’t mind an interior cabin. In April, as Carnival desperately sought to restore sales from the Triumph debacle, some four-night cruises from Miami were being sold for a mere $149."

This week, Carnival's CEO and Chairman surrendered his operating executive title. Director Arnold Donald, a longtime Monsanto executive and Carnival board member, will take over as chief executive from Micky Arison, who will remain board chairman. Compared to the fate of most CEOs who've had to walk the plank after operational failures and subsequent reputational crises, it's not a bad outcome.

Turning to the Steel City Re reputational value metrics, updated since our last visit of Carnival Corp (CCL) in January 2012, the company's CRR, a measure of its relative Reputational Premium, is hanging on the the top quartile in its peer group of 39 companies in the Hotels/Resorts/Cruise Lines sector. How so? Well, it's all relative. As Bloomberg reported, the entire industry is having issues this year.

It’s been a choppy few months for cruise ship operators. Memorial University of Newfoundland professor Ross Klein, who studies the industry and is the publisher of CruiseJunkie.com, collected reports of 31 incidents on cruise ships in the first three months of 2013, finding more ships run aground and more propulsion problems than in all of 2012. (To be fair, there were far fewer collisions; Klein’s data are self-reported by cruisers.)


The rash of incidents helps explain why the median sector reputational value volatility, Current RVM volatility in the chart below or Consensus Trend, was hovering around 5% for the better part of this year. 7% is a threshold value for major market capitalization movements.




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