The Brush Effect

After reading his columns for some time, I began to get the sense that stocks seemed to do well after being recommended by MSN Money columnist Michael Brush. I decided to research whether my anecdotal feeling was actually accurate. Based on an admittedly small sample size, it seems my intuition has some support. I've posted below an analysis of stocks picked by Brush in his articles, following them on a one-day and one-week basis after his pick. Brush's picks significantly outperformed the S&P 500 over these periods. A few caveats. I only used articles in which Brush recommended a finite number of stocks, e.g. "5 Big Names Ripe for Takeover, not articles in which Brush gave more general market analysis. My reasoning is that investors would have had a tougher time ferreting out investment ideas from the more general articles and were more likely to pass on them. An arbitrary determination to be sure, but not without some logic. In any event, I'm working on a trading strategy to capitalize on this and will report back:

MICHAEL BRUSH ANALYSIS

Thesis 1:  The media has a preeminent influence over behavior in the modern age and this influence extends to investing. 

Thesis 2:  Stocks recommended by Michael Brush, MSN Money columnist, experience a marked increase in value immediately after Brush recommends them.

Background:  I noticed that stocks recommended by MSN Money columnist Michael Brush seem to do well immediately after he recommends them.  I decided to see if this was true or only seemed to be the case.  I examined only a subset of Brush’s articles because he doesn’t specifically recommend stocks in every article.  I usually only focus on articles of the type “Six Stocks Insiders Are Snapping Up.”  He has other articles which don’t make specific recommendations or just talk generally about an issue.  I examined articles from 2011 and 2012.  I excluded two articles where he made recommendations of 10 and 12 stocks, respectively, because I thought this was too scattershot for investors (including me) to hone in on.    However, it might be necessary to look at these. 

Conclusion:  Indeed, stocks recommended by Brush outperform the S&P in the week following his recommendation by a significant percentage.  This effect appears most pronounced for stocks valued under $10.  The one week returns are better than the one day returns.  My suspicion is that the effect is the result of investors jumping into these stocks based on Brush’s recommendation, rather than his timing being exceptional (or indeed the picks themselves being exceptional).  It could also be that electronic trading platforms are programmed to buy his recommendations.  The articles which are the source of the data are listed after the table.  This sample may be too small to permit reliable conclusions, however.

 

Stock	Adjust. Close on Start Date	Adjust. Close 1 day out	1 day return	Adjusted Close 1 week out	1 week Return	High During 1 Week Period	S&P Return Over  1 day Period	S&P Return Over 1 week Period
WHR	63.54	65.28	2.7%	58.38	-8.1%	65.28	0%	-6.4%
SKYW	12.74	13.17	3.3%	12.82	0%	13.17	0%	-6.4%
XRX	8.68	8.76	.9%	8.04	-7.3%	8.76	0%	-6.4%
TSN	17.02	17.20	1%	16.61	-2.4%	17.20	0%	-6.4%
AET	38.86	38.89	0%	36.59	-8.4%	38.89	0%	-6.4%
MS	16.11	15.91	-1.2%	16.67	6.2%	16.67	-1.6%	1.5%
HAS	35.14	35.84	2.0%	36.45	3.7%	37.37	-1.6%	1.5%
RT	7.56	7.55	0%	7.80	3.2%	8.35	-1.6%	1.5%
KFT	33.02	32.67	-1.1%	32.82	1%	33.42	-1.6%	1.5%
EMR	42.28	41.80	-1.1%	43.77	3.5%	45.08	-1.6%	1.5%
BRK.A	104,814.00	102,600.00	-2.1%	103,491.00	-1.3%	106,350	-1.6%	1.5%
CMG	246.98	250.98	1.6%	272.20	10%	272.20	1%	2.4%
APKT	67.01	68.00	1.5%	72.07	7.4%	72.57	1%	2.4%
IRBT	29.28	29.55	.9%	32.81	12%	32.81	1%	2.4%
ISRG	320.93	330.50	2.8%	338.21	5.4%	338.21	1%	2.4%
ZOLT	13.30	13.51	1.6%	13.53	1.7%	13.53	1%	2.4%
PSUN	3.41	3.36	-1.5%	3.54	3.8%	3.54	1%	2.4%
SIRI	1.67	1.70	1.8%	1.72	3%	1.73	1%	2.4%
CRWN	2.24	2.35	4.9%	2.34	4.5%	2.40	1%	2.4%
TXCC	2.87	3.37	17.4%	4.47	56%	4.61	1%	2.4%
COWN	3.92	4.04	3.1%	4.08	4.1%		1%	2.4%
MKC	47.67	47.23	-.9%	46.35	-2.8%		-1.9%	-4.7%
AFL	55.25	54.17	-2%	49.49	-10.4%		-1.9%	-4.7%
ADP	49.44	48.93	-1%	46.96	-5%		-1.9%	-4.7%
PAYX	32.41	32.13	-.9%	30.27	-6.6%		-1.9%	-4.7%
TSCO	54.59	53.94	-1.2%	52.94	-3%		-1.9%	-4.7%
SHLAF	NA						-1.9%	-4.7%
AEO	14.12	15.40	9%	15.38	8.9%		0%	1.2%
Petrohawk	Acquired as Brush predicted; NA						0%	1.2%
WAL	8.08	8.11	0%	8.30	2.7%		0%	1.2%
Lawson	Taken private, as predicted; NA						0%	1.2%
CPNO	31.57	31.68	0%	32.36	2.5%		0%	1.2%
Pride Int’l	Acquired as predicted;NA						0%	1.2%
LKQ	25.14	25.38	.9%	25.64	2%		0%	1.2%
AMD	8.39	8.26	-1.5%	7.93	-5.5%		0%	0%
BBT	26.01	26.03	0%	26.43	1.6%		0%	0%
GE	17.88	17.82	0%	17.56	-1.8%		0%	0%
AMR	Unav.						0%	0%
MMM	85.84	85.24	0%	85.33	0%		0%	0%
CMRG	3.13	3.32	6%	3.56	14%		1%	4%
VVTV	1.59	1.67	5%	1.94	22%		1%	4%
ETAK	2.02	2.26	12%	2.39	18%		1%	4%
GSL	2.52	2.90	15%	3.43	36%		1%	4%
FBP	3.64	3.71	2%	4.00	10%		1%	4%
Combined  Average Total Return			2.7% (80.7% total return ÷ 39 investments)		4.4% (173.4% total return ÷ 39 investments)		-.21%         (-1.5% total return ÷ 7 investment periods)	-.29%         (-2.5% total return ÷ 7 investment periods)