2010
Human capital management predicts stock prices
In 2001 and 2003, under the auspices of our sister company (Bassi Investments, a registered investment advisory firm), we launched two different investment portfolios. The investment strategy for these portfolios rests on our research finding that firms making significant investments in formal learning and development for their employees subsequently outperform the market. In the table below, these are portfolios A and B.
In 2008, we launched four additional portfolios, based on broader concepts of human capital management, which we refer to as Portfolios C to F. We use a variety of selection criteria for these four newer portfolios, including evidence of being a “good employer” and an unusual degree of commitment to talent management systems.
The performance of these six portfolios, relative to the S&P 500, is summarized in Table 1. Overall, the average (weighted) performance of these portfolios relative to the S&P 500 is +4.7 percent per year. Additional information is available in our issue brief on this topic. It is important to note that with the exception of Portfolios A and B, the track record of these portfolios is relatively short. And, of course, past performance is never a guarantee of future returns.
Having said that, the results support the conclusion that human capital management is fast emerging as an essential core competence (possibly the essential core competence) for organizations. Interestingly, although the firms we hold in our portfolios are among the world’s leaders in human capital management, our analysis indicates that even these companies, on average, are still relatively unskilled at measuring and optimizing their investments in human capital. So there’s still room for improvement – and still time for other organizations to catch up.
NOTE: Reported portfolio performances do not include fees or expenses and are based on tracking statistics provided by account custodian. S&P 500 does not include dividends. Contact Bassi Investments for additional information.
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Solon FrazilusJune 17, 2010 at 7:42 pm
I was fortunate enough to sit in on your discussion at the HR Workshop in NYC. Interesting insight both here and at the workshop. How do you recommend making management aware that with most organizations (even academic institutions) the development of personnel is a key component to organizational value?