Yes, Strong Work Culture Creates Better Market Returns

work culture effect on market

Now, this is interesting. A 2015 report from Glassdoor tells us that job satisfaction and a strong work culture is an essential indicator of a company’s stock performance and potential market returns. The “Best Places to Work” portfolio tracked a $1,000 investment of firms with top satisfaction levels among employees in Silicon Valley. What satisfied employees? Great workspaces, dog-friendly campuses, laid-back dress codes, free meals, and more. Who knows? It’s just that companies are making efforts to increase employee satisfaction and strengthen work cultures.

The Real Effect on Market Gains

From 2009 to 2015, the “Best Places to Work” portfolio outperformed the S&P 500 by a wide margin. That $1,000 investment turned into $3,470 – or a 247% return. The S&P 500 portfolio, meanwhile, turned into $2,210. That’s a 121% return. So… two to one. Is this an anomaly? Not necessarily.

But it does speak to the need to find VERY different ways to make money. What are other signals? This is unique – and it makes a lot of sense in academic hindsight. Great firms have great profits. These firms get the top talent. They retain that talent by having policies that make people want to work and stay there.

What else? When people don’t leave, there is a continuation of work. It takes about two times the salary of a person to replace them. And when you remove a person from a company, that absence can create great bottlenecks that disrupt the business.

So, do companies that have low satisfaction levels underperform? Yes, according to Glassdoor.

The Next Big Market Trend

Right now, I hear a few things about cash on the sidelines. Goldman Sachs says that it anticipates a big uptick in stock buybacks in the months ahead. Two weeks ago, the investment bank predicted that buybacks could increase by 35% this year. It also expects a 5% jump in buybacks in 2022.

I’m not paying attention to buybacks. While I know that companies want to return capital to shareholders, I’m always skeptical of buybacks. The reason: It’s an easy way to manipulate a stock price. And a lot of executives are paid bonuses based on the value of their stocks (called milestones). I’d much prefer that companies set aside capital for rainy day funds. They can still invest the money, but they should have available liquidity instead of going out and issuing debt or a secondary offering later to raise money.

So, what am I watching? Deal-making. In the first four months of 2021, we saw a record of $1.77 trillion in mergers and acquisitions. Refinitiv data indicates a 124% jump in deal-making during that period compared to 2020. That trend is not going to settle down. And I’m expecting a ton of deals to continue into the summer with companies sitting on so much cash and dry powder.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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