B.i.g. Tips - Barron's Most Respected Companies

2/17/09

Barron’s Survey of World’s Most Respected Companies This weekend, Barron’s published their fifth annual survey of the World’s Most Respected Companies. In each year’s survey, Barron’s asks a pool of money managers regarding their opinions on the level of respect they have for the largest 100 companies in the world. Respondents to the survey say that they base their views on strong management, sound business strategy, competitive edge, ethical business practices, and revenue and profit growth. In the table below, we highlight this year’s top ten respected companies, the ten companies that are still on the list that showed the largest decline, and the ten companies that were on the list last year that saw the biggest jump in the most recent survey. Barron's Most Respected Companies in the World Top Ten - Overall Rank 1 2 3 4 5 6 7 8 9 10

Name J&J Berk. Hathaway Procter & Gamble Apple Wal-Mart Stores Exxon Mobil McDonald's Toyota Motor Coca-Cola Cisco Systems

Ticker JNJ BRK/A PG AAPL WMT XOM MCD TM KO CSCO

Biggest Losers Rank This Rank Last Year Year Name 43 11 General Electric 61 34 Royal Dutch Shell 51 31 BHP Billiton 81 63 BG Group 23 6 Google 62 45 BP 49 33 Nintendo 98 82 Bank of America 53 38 Qualcomm 63 48 HSBC Holdings

Ticker GE RDSA NA BHP AU BG/ LN GOOG BP/ LN 7974 JP BAC QCOM HBC

Biggest Gainers Rank This Rank Last Year Year Name 47 62 Verizon 68 81 China Mobile 45 54 Bayer (Germany) 60 68 Occidental Petr. 15 22 Abbott Labs 6 12 Exxon Mobil 17 23 Hewlett Packard 65 71 Total (France) 50 55 VW (Germany) 64 69 Siemens

Ticker VZ CHL BAY GY OXY ABT XOM HPQ FP FP VOW GY SI

Given that these companies are highly respected, the question is are they good investments? In the chart below, we compared the return of the ten most respected companies in the world (changing members each year) to the S&P 500. As shown in the chart below, since the first survey (September 2005), the ten most respected companies in the World have declined by 23.5% compared to the decline of nearly 36% in the S&P 500. Even more interesting, however, is that the most respected companies were generally underperforming the S&P 500 until the Fed started cutting rates in response to the increasing intensity of the credit crisis. Continued on page two.

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Barron's Top Ten Respected Stocks vs S&P 500: 9/05 - Present 130

Fed Easing Cycle 120

S&P 500

110 100 90

Most Respected Companies

80

-23.5%

70

-35.8% 60 9/05

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© Copyright 2009, Bespoke Investment Group, LLC. Bespoke Investment Group, LLC believes all information contained in this report to be accurate, but we do not guarantee its accuracy. None of the information in this report or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities.

Bespoke Investment Group

B.I.G. Tips

2/17/09

In the charts below, we have broken the chart on page one into two periods: pre-Fed easing cycle, and post-Fed easing cycle. As shown in the chart below on the left, from 2005 up until the start of the Fed easing cycle, the S&P 500 outperformed the most respected companies by nearly 1,200 basis points. Since the start of the Fed easing cycle, however, the S&P 500 has declined by nearly 44%, while the most respected companies in the world have only declined by 25%. Based on these figures, it appears as though investors place increased emphasis on respect for companies during bear markets than they do during bull markets. Barron's Most Respected Companies vs S&P 500: Pre and Post Fed Easing Cycle September 2005 - August 2007 S&P 500

120

100

110

90

105

80 70

Most Respected Companies

95 90 9/05

Most Respected Companies

110

115

100

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August 2007 - Present 120

125

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9/06

3/07

S&P 500

60 50 8/07

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While high levels of respect for a company have helped the performance of stocks during the credit crisis, falling levels of respect have been a big drag. In the chart below, we highlight the performance since August 2007 of the stocks in each year’s survey that showed the largest drop in their average respect Stocks With Declining Respect Scores vs S&P 500: August 2007 score. As previously mentioned, 120 since the Fed started cutting inter- 110 est rates in August 2007, the S&P 100 500 has lost nearly 44% of its 90 80 value. However, the ten stocks 70 that have shown the largest de60 crease in their respect scores de-43.6% 50 clined by 64.8%. In this environ40 ment, once companies started -64.5% 30 showing less luster, their stock 8/07 2/08 8/08 2/09 prices were not far behind. Based on the results of prior year’s surveys, investors looking for ideas on the long side using this approach would be best served by focusing on stocks that have shown the largest increase in their respect scores (green table on page one), while investors looking for short ideas would be best served focusing on the companies with the biggest decrease in their respect scores (red table on page one). Page 2 of 2

© Copyright 2009, Bespoke Investment Group, LLC. Bespoke Investment Group, LLC believes all information contained in this report to be accurate, but we do not guarantee its accuracy. None of the information in this report or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities.

Bespoke Investment Group

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