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JOURNAL: Managerial Finance

VOL/ISSUE NO: 00/00
ARTICLE NO: 628101
ARTICLE TITLE: Is all that glitters gold? A look at Fortune magazine’s 100
fastest-growing companies
AUTHORS: Anthony Thomas Garcia, Anthony Loviscek and Kangzhen Xie

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 The current issue and full text archive of this journal is available on Emerald Insight at:
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100 fastest-
Is all that glitters gold? A look growing
at Fortune magazine’s 100 companies

fastest-growing companies
Anthony Thomas Garcia, Anthony Loviscek and Kangzhen Xie
Department of Finance, Seton Hall University, South Orange, New Jersey, USA
Received 25 October 2017
Revised 8 October 2018
25 February 2019
Abstract Accepted 8 April 2019
Q1 Purpose – Does Fortune magazine’s list of the 100 Fastest-Growing Companies have information content;
that is, is the list a source for market-beating performance? The paper aims to discuss this issue.
Design/methodology/approach – Using data for 26 annual periods, 1991–2016, the paper examines the
top 5, 10, 25, 50 and all 100 stocks on a return-risk basis, including an application of Modern Portfolio Theory.
To generate portfolio performance metrics, the study uses conventional mean-variance analysis, which
includes the estimation of returns and risks, where risk will be measured by standard deviation and β.
Q2 To arrive at the performance metrics and to determine whether information content is embedded in the list,
the study reviews a series of tests. Because Fortune ranks the companies from 1 to 100, the data can be used to
test if information content is displayed in sub-groups, such as in the first five to ten companies, even if it does
not exist in the 100-stock portfolios.
Findings – The study finds that the returns are not high enough nor are the risks low enough statistically to
conclude the existence of significant information content.
Research limitations/implications – As part of the authors’ efforts to move to the population of 2,600
firms as closely as possible, the authors use “delisting” returns from CRSP on 120 firms to account for missing
observations, with a final sample size of 2,594 firms.
Practical implications – The evidence indicates that investors drawn to Fortune’s “100 Fastest-Growing
Companies” should view them skeptically as a source for an effective stock selection strategy.
Originality/value – On the basis of the results of this study, readers will conclude that subscribers drawn
to Fortune’s “100 Fastest-Growing Companies” should view them skeptically for investment
recommendations. From a portfolio perspective, the study is unable to uncover information content that
could lead to a market-beating performance, suggesting that the published criteria Fortune uses to select
the Fastest-Growing Companies is embedded in the prices of the stocks even before Fortune publishes its
list. The study notes that the selection criteria used by Fortune do involve some judgments on the part of
the editorial staff (e.g. whether an announced restatement of previously reported financial data appears to
have a significant impact), which means that someone who wished to anticipate the publication of the next
list of the “Fastest-Growing Companies” would not only have to gather information but would also have to
correctly anticipate these judgment calls.
Keywords Risks, Returns, Portfolios, Sharpe ratio
Paper type Research paper

Introduction
An effective stock selection strategy lies at the heart of active stock portfolio management.
Although efficient markets theory and evidence (e.g. Fama, 1970, 1991) strongly suggest
that the search, on average, for an effective strategy is futile, the wide variety of sources
that recommend stocks and stock selection strategies indicate that the quest remains
alive and well. A small sample includes Barron’s, The Wall Street Journal, Value Line’s
Investment Survey, Morningstar, Zack’s Investment Research and S&P’s Capital IQ
STARS. In addition, investors have up-to-the-moment analyst reports from major
brokerage houses and investment advisory firms, as seen, for example, in online financial
data feeds, such as Bloomberg and Briefing.com.
In addition to the views of Fama, the findings from many researchers cast doubt on the
information content of such sources, namely, recommendations and selection strategies that Managerial Finance
consistently outperform a broad market index on a risk-adjusted basis. For example, regarding © Emerald Publishing Limited
0307-4358
televised media, Keasler and McNeil (2010) find no significant, long-term, market-beating DOI 10.1108/MF-10-2017-0428
MF impact from watching “Mad Money,” especially during the “Lightning Round,” a finding in line
with a study by Pari (1987) about stock recommendations announced on the (late) Louis
Rukeyser’s “Wall $treet Week.” In print media, Desai and Jain (1995) have significant difficulty
uncovering evidence of excess profits in a time series study of Barron’s Annual Roundtable
recommendations. The same holds for the study by Bauman et al. (2002). They question the
profitability of following Business Week’s small stock recommendations, uncovering even
negative returns once the list is published. Additionally, Ferraro and Stanley (2000) conclude
that a group of professional investors are unable to outperform a random selection of stocks in
The Wall Street Journal’s “Dartboard Contest.” Although Choi (2000) discovers a potentially
profitable effect from Value Line’s recommendations, he concludes that transaction costs
significantly reduce it. Metrick (1999) concludes that the quest is unlikely to be met by
following investment advisory newsletters. And selecting the top holdings from Morningstar’s
highly rated large-cap mutual funds is unlikely to produce market-beating performance,
according to Weigand et al. (2004). In a similar vein, Clayman (1987) shows that “excellent
companies,” which Peters and Waterman (1982) identify through special qualitative criteria, do
not necessarily make good investments.
Not all researchers agree with the totality of these findings. As one point, the literature on
behavioral finance questions whether investors can be rationally efficient, as suggested by
mis-pricings and the slowness of arbitrageurs to close them, as expressed by Schleifer and
Vishny (1997). Without fully rational behavior, markets will not always meet the efficient
markets paradigm, creating opportunities for abnormal returns. Curtis (2004), citing the
work of Kahneman and Tversky (1973), agrees:
Since Markowitz won the Nobel in 1990, we have tended to design our portfolios as though we were
all mean variance optimizers, perfect little economic beings who always made the “right” decision
in our own interests. The work of Kahneman, Tversky et al. has blown this cozy little conceit to
pieces. True, sometimes we behave like perfect economic beings. But other times we behave like,
well, human beings.

Additionally, there is a counterpart to the now-famous Random Walk Down Wall Street
(Malkiel, 2015) with the Non-Random Walk Down Wall Street (Lo and MacKinlay, 1999).
There is also Singal (2004) with Beyond the Random Walk: A Guide to Stock Market
Anomalies and Low Risk Investing.
Q3 More recently, Jones and Wermers (2011) find that while superior-performing portfolio
managers, by definition, are a minority, investors can use public information to identify
them and, as a result, profit from them. Regarding public data and information content,
Smith (2016) uncovers significant evidence embedded in Fortune’s “Most Admired”
companies, especially in the “Top 10” companies. With respect to selection strategies,
Prentis (2011) shows that investor overreaction allows a “maxima–minima” trading rule
based on the S&P 500 to outperform the classic buy-and-hold approach. Prather et al. (2009)
demonstrate that accounting changes in stock options trigger price reactions that do not
align with cash flows.
Earlier studies also suggest the possibility of realizing market-beating returns. Ahmed
and Nanda (2001) demonstrate that “growth at a reasonable price,” or stocks with a low
Q4 P/E ratio and strong EPS growth, are capable of producing superior gains. With respect to
televised media, Ferreira and Smith, 2003) show that “Wall $treet Week” had information
content for up to eight quarters following the televised interviews. Regarding print media,
Adranji et al. (2002) discover that the risk-adjusted performances of The Wall Street
Journal’s “Dartboard” portfolios of stocks chosen by the analysts consistently
outperformed those of the randomly selected stocks, the Dow Jones Industrial Average,
and the S&P 500. Porras and Griswold (2000), using multifactor modeling, assert that
information content is contained in the stocks that Value Line forecasts will underperform,
and Mulugetta et al. (2002) show that changes in Standard & Poor’s stock ratings can 100 fastest-
lead to abnormal returns. Considering these two strands of literature, on which side do the growing
“100 Fastest-Growing Companies” align? companies
These two groups of studies motivate the current one. It is about Fortune’s “100 Fastest-
Growing Companies” represent an annual list of public companies that either meets or
exceeds three primary criteria involving revenue, net income and total return. Thus, on
which side do the “100 Fastest Companies” align, the efficient markets side or the
information content side? It is not uncommon to find statements suggesting that the list may
be a source for investors who seek stocks that provide superior performance. For example,
“if you’re looking for investment opportunities, check out the twenty companies profiled
below,” in reference to the Top 20 companies among Fortune’s “100 Fastest-Growing
Companies” (Cacace et al., 2012). There is also “Lending Tree is booming, and its stock is
soaring as more consumers shop online” (Tully, 2017). Furthermore, there are other direct
references to investment opportunities among the lists, such as “the “Fastest-Growing” list
is a wonderful window into which sectors of the economy are hot. Here is how we found a
handful of good bets that should keep climbing” (Birger, 2008). And from the online
investment research platform Seeking Alpha, we find that the list may be a source for
market-beating performance, as Krejca (2015) recommends ten companies likely to
outperform the S&P 500. As yet another draw for investors can be seen in the following
statement, indicating superior performance:
The company continues to beat Wall Street expectations, reporting adjusted earnings per share of
19 cents on $59 million in revenue in the first quarter of 2014. Wall Street had expected earnings of
18 cents of the former and $58 million of the latter. (DeCarlo et al., 2015)
Statements such as these and the fact that Fortune has published the list annually since the
early 1990s may be viewed as a sign that the list contains information that will help active
investors in their selection of securities. But what is the evidence? Efficient markets
advocates would state that such is highly unlikely, because any valuable information
content that, at one time or another, was embedded in Fortune’s list would be quickly priced
away in future listings once it is realized. In fact, because Fortune publishes the selection
criteria, and uses data as of June 30, prior to the September publication date, any
information content should be priced in before the publication date, rendering the list
useless as a market-beating, stock selection method for the magazine’s readers. If this is
indeed the case, then Fortune is listing the companies for information purposes only,
showing its readers which companies and sectors are the fastest growing. What the reader
does with the information is beyond Fortune’s concern, especially because the magazine,
which views its mission as the best-in-class storytelling (Fortune 2018), does not sell itself as
an investment advisory medium, as does, for example, Value Line.
Is Fortune’s “Fastest-Growing 100 Companies” worthy of investor interest? To date, the
finance literature has not addressed this question, namely, whether the list contains
information content. This study attempts to fill the void from a portfolio perspective.
It tracks the annual performance of the firms that comprise the list. Because the stocks are
ranked from 1 to 100, and because information content could be in a subset of the 100 stocks,
this study is motivated in particular by the work of Smith (2016), which is an extension of
Anderson and Smith (2006). They show that information content exists in the “Top 10” of
Fortune’s “Most Admired” companies and assert that no simple explanation can account for
this finding. Does a similar conclusion hold for the “100 Fastest-Growing Companies?” Thus,
we search for information content in the Top 5, the Top 10, the Top 25, the Top 50 and
“All 100.” To guide the study, we test the following hypothesis:
H1. Fortune’s “Fastest-Growing 100 Companies” lack the necessary information content
that would enable investors to outperform a broad market index.
MF Fortune uses the following ranking criteria (which are taken from the September 2015 issue,
and are consistent with the criteria for the other years included in the study):
To qualify, a company-domestic or foreign-must be trading on a major U.S. stock exchange; report
data in U.S. dollars; file quarterly reports with the SEC; have a minimum market capitalization of
$250 million and a stock price of at least $5 on June 30, 2015; and have been trading continuously
since June 30, 2012. Companies must have revenue and net income for the four quarters ended on or
before April 30, 2015, of at least $50 million and $10 million, respectively. They also must post an
annualized growth in revenue and earnings per share of at least 15% annually over the three years
ended on or before April 30, 2015.
Companies that meet these criteria are ranked by revenue growth rate; EPS growth rate;
and three-year annualized total return for the period ended June 30, 2015. (To compute the
revenue and EPS growth rates, Fortune uses a trailing four quarters log linear least squares
regression fit.)
The overall rank is based on the sum of the three ranks. Once the 100 companies are identified, they
are then re-ranked within the 100, using the three equally-weighted variables. If there is a tie, the
company with the larger four-quarter revenue receives the higher rank.
Excluded are real estate investment trusts, limited liability companies, limited partnerships,
business development companies, closed end investment firms, companies about to be acquired,
and companies that lost money in the quarter ended on or before April 30, 2015. In addition,
Fortune excludes companies that have announced intentions to restate previously reported
financial data, if these errors appear to have a significant impact. Also, Fortune excludes companies
that lost money in the quarter ended May 31 or June 30, if the loss represents a deterioration in
business conditions. The data are provided by Zacks Investment Research. The data checking
process was aided by information provided by S&P Capital IQ, Hoover’s, FactSet Research
Systems, and Morningstar Document Research. (DeCarlo et al., 2015)
As will be seen, across the subsets of portfolios, we are unable to uncover statistical
evidence of information content, whether in rates of return or in risk-adjusted returns, as
measured by the Sharpe performance metric. As a result, we fail to reject the hypothesis
under study.

The model
To generate portfolio performance metrics, we use conventional mean-variance analysis,
which includes the estimation of returns and risks, where risk will be measured by standard
deviation and β. Regarding β, we begin with the statement by Markowitz (2009) that
the classic one-factor model of Sharpe (1963, 1966), which is based on conventional
mean-variance analysis, can be used effectively to address the issue at hand, as follows:



Ri;t –Rf ¼ ai þbi Rm;t Rf þei;t ; (1)

Q5 where (Ri,t–Rf ) is the return on security i in excess of the risk-free rate Rf; (Rm,t−Rf ) the
return on the market in excess of the risk-free rate Rf; βi the index of systematic risk; αi
the security i’s excess return that is independent of the market’s excess return; and ei,t the an
idiosyncratic term.
To arrive at the performance metrics and to determine whether information content is
embedded in the list, we run a series of one-year holding period tests; that is, the stocks of
companies listed in period T are tracked for performance in period “T+1.” As mentioned,
because Fortune ranks the companies from 1 to 100, we can test if information content is
displayed in sub-groups, such as in the first five to ten companies, even if it does not exist in
the 100-stock portfolios.
Data and testing 100 fastest-
The data come from two sources, CRSP and Bloomberg. Across the years, we began with growing
2,600 firms, or 100 for each year, from 1991 through 2016. For each of the five portfolios, we companies
use monthly rates of return over a four-year period. The first three years follow Fortune’s
approach of looking at historical data, which we use in the interest of consistency when
estimating the βs. The fourth year represents the testing period “T+1.” Fortune typically
publishes the list of 100 firms in its September issue of each calendar year (with October
being the publication month in 1991 and 1992). As a result, all estimation and all testing are
guided with this in mind. For example, the list for 2016 came out in the September issue.
Four years of monthly returns, or from September 2012 through August 2016, apply to each
of the 100 companies, with the testing period being September 2016 through August 2017.
Because Fortune releases its list once per year, we use a one-year buy-and-hold strategy
to test for portfolio outperformance. However, we also test for the possibility of portfolio
outperformance over a one-month period, recognizing the rapidity with which stock prices
incorporate new information. For the one-year approach, we assume the portfolio is
constructed on August 31 of a given year from the current “Fortune 100” and is held to
August 31 of the following year (with September through October being the case for 1991
and 1992, given the October publication dates of the lists). The portfolio is then sold
on August 31 and a new portfolio is held for one year based on the new listing of the
“100 Fastest-Growing Companies.” For the one-month approach, we examine the returns
across the portfolios in September (with October being the case in 1991 and 1992).
In terms of Equation (1), the Wilshire 5000 represents the market return, which
follows Malkiel (1995, 2015). Although the lists are dominated by small-cap firms, an
occasional mid-cap and large-cap firm makes the list. For example, Apple, Cisco, E-Bay,
Microsoft, Priceline and Qualcomm are listed among the top 100 firms in various years.
Thus, it is prudent to use a large representative index that captures firms of all sizes.
That said, for additional perspectives, we include the Russell 2000, well known as an index
for small-cap firms.
We do not encounter any significant data constraints. While small-cap firms can be easy
acquisition targets and sometimes adopt private equity conversions, for example, we are
able to obtain return data on all but 6 of the 2,600 firms under study.
Regarding the estimated βs, we find that over 90 percent of them are significant
at the 10 percent level or better. However, the companies that do not have significant
βs are still included in the portfolio rates of return, but are not included when estimating
the portfolio βs.

Results
A concise and insightful summary of the descriptive statistics and results are contained in
Tables I and II for all 26 years, or from 1991 through 2016. We include metrics from the
Wilshire 5000 (W5000) and Russell 2000 (R2000) for comparison and perspective.
We provide the assets, sales and market valuation data to support our use of the Wilshire
5000 and Russell 2000 as benchmarks. We use the firms in Compustat as a proxy for the
firms in the Wilshire 5000 and the firms in the Russell 2000 with market valuations between
the top 1,000 and the top 3,000 as a proxy for the firms in this index. The assets of the
Fortune firms are smaller than those in the Compustat group and exceed those in the Russell
2000 after 1995, reflecting the relatively high growth rates of the “Fortune 100.” The sales of
the Fortune firms are generally larger than those of Russell 2000 firms but are similar to
those of the Compustat firms, registering an average sales of $2,650.22 compared to
$2,605.11. The market values of the Fortune firms are clearly larger than those of Russell
2000 firms, posting on average of $3,451.69 vs $2,022.91. They are smaller than those of the
Compustat firms from 1991 through 1995, but they are larger in the successive years.
MF Fortune Compustat Russell 2000
Year Assets Sales Valuation Assets Sales Valuation Assets Sales Valuation Delisted

1991 483.71 521.30 794.62 2,084.70 1,071.77 766.94 673.86 361.45 219.50 2
1992 409.89 464.87 704.22 2,135.46 1,075.10 804.86 656.91 385.11 280.85 4
1993 540.51 598.93 985.01 2,077.08 969.03 857.70 805.25 448.60 378.68 5
1994 435.60 472.68 745.90 2,172.60 1,020.76 844.54 994.07 522.24 392.71 6
1995 557.95 589.63 1,043.91 2,370.45 1,109.54 1,079.96 1,055.38 584.58 521.79 4
1996 758.75 1,011.14 1,617.95 2,531.56 1,140.89 1,258.50 1,140.05 665.33 663.13 7
1997 827.11 1,004.12 1,761.03 2,872.62 1,237.74 1,640.71 1,209.62 747.10 839.02 7
1998 1,172.51 1,225.76 2,802.12 3,394.52 1,369.86 2,056.95 1,366.35 815.65 777.09 8
1999 1,133.66 1,371.71 3,951.97 4,032.31 1,532.56 2,806.43 1,690.71 971.86 981.54 8
2000 1,783.27 3,023.36 3,564.59 4,686.74 1,816.47 2,813.82 1,603.61 980.69 897.23 4
2001 2,296.13 2,034.87 2,734.43 5,892.76 2,057.60 2,647.60 1,652.31 937.61 843.48 7
2002 2,438.44 2,218.35 2,570.89 6,778.57 2,205.66 2,269.44 1,807.63 966.04 687.98 3
2003 3,499.71 2,490.14 3,156.80 8,094.01 2,542.45 3,114.40 1,915.05 1,003.25 1,022.39 6
2004 4,550.06 2,731.46 3,620.85 9,183.16 2,865.74 3,513.34 2,067.9 1,140.68 1,206.62 4
2005 6,394.45 4,348.65 4,272.04 10,097.15 3,124.34 3,827.47 2,172.89 1,206.84 1,278.50 6
2006 6,306.33 4,672.03 5,153.42 11,709.32 3,536.75 4,474.13 2,239.38 1,271.30 1,427.10 5
Table I. 2007 6,820.94 4,700.49 6,210.18 13,970.42 3,773.43 4,686.79 2,354.32 1,258.23 1,282.11 2
Descriptive statistics 2008 3,382.61 3,436.24 5,751.39 13,986.53 3,958.46 3,029.35 2,536.47 1,373.51 717.79 1
of firms in Fortune’s
2009 3,690.74 3,467.04 6,124.82 14,326.23 3,728.56 3,946.47 2,416.01 1,129.28 962.93 3
list of “100 Fastest-
Growing Companies,” 2010 3,941.88 3,308.25 7,771.54 15,167.92 4,137.44 4,564.70 2,289.52 1,242.41 1,200.62 2
firms in the 2011 4,585.80 3,516.35 8,097.95 16,081.86 4,634.36 4,435.94 2,591.86 1,374.59 1,115.5 4
Compustat sample 2012 5,244.89 4,095.84 9,763.70 16,892.19 4,826.10 5,092.59 2,891.77 1,449.72 1,259.07 5
and firms in Russell 2013 7,380.54 5,041.38 11,948.81 16,730.59 4,830.38 6,090.84 3,070.83 1,510.36 1,724.85 4
2000 index in terms of 2014 7,278.92 4,829.55 11,099.25 16,684.56 4,745.53 6,441.18 3,426.91 1,600.52 1,860.85 7
assets, sales and 2015 6,949.95 3,918.41 9,675.22 16,309.67 4,365.75 6,128.97 3,516.73 1,564.37 1,631.72 3
market valuation 2016 6,879.54 4,113.30 11,385.8 17,191.42 4,435.29 6,747.31 3,574.66 1,529.89 1,808.47 3
(in $millions) Mean 3,451.69 2,650.22 4,896.48 8,452.15 2,605.11 3,210.88 2,022.91 1,048.39 1,012.49 120

Top 5 Top 10 Top 25 Top 50 All 100 W5000 R2000

Table II.
Summary portfolio Mean 19.17 16.09 14.96 12.22 12.30 10.82 10.95
return and risk Maximum 217.79 139.86 87.98 69.19 51.52 38.87 33.19
statistics, as measured Minimum −64.22 −51.58 −35.85 −36.42 −32.41 −25.56 −21.29
by standard deviation SD 34.01 28.49 24.09 22.74 20.95 13.31 17.70
and β (1991–2016) β 1.89 1.86 1.82 1.73 1.65 1.00 1.00

Overall, the comparison of assets, sales and market values helps to support our use of the
Wilshire 5000 and Russell 2000 indices as benchmark groups.
We also provide the number of firms which were delisted from the exchanges within one
year of the publication date. Only 120 out of the total of 2,600 fall into this category.
Nonetheless, we use the returns for the month of delisting to increase the sample size as
closely as possible to the total of 2,600.
The range of the returns in Table II is striking, from a low of −64.22 percent to a high of
217.79 percent, as shown for the “Top 5.” The returns on the “Top 10” also have a large range,
from −51.58.95 to 139.86 percent. Each of the portfolios registers a higher average annual
return than either that of the Wilshire or that of the Russell 2000, which post gains of 10.81
and 10.93 percent, respectively, with the “Top 5” leading by 853 basis points at 19.34 percent.
However, the higher returns come at the price of higher risks, as measured by standard
deviations, from 57 to 156 percent higher relative to the 13.31 percent of the Wilshire 5000.
 Not unexpectedly for fast-growing firms, the portfolio βs are high, ranging from 1.65 for 100 fastest-
“All 100” to 1.89 for the “Top 5.” growing
For more insight into the portfolio performances, we have Tables III and IV. Table III companies
displays the annualized portfolio rates of return per year. Table IV shows the annualized
standard deviations per year.
At least three salient observations emerge. First, out of the 26 yearly returns, the “Top 5”
yields positive returns 15 times, whereas the “Top 10” registers positive returns on 19
occasions and “All 100” shows gains in 18 of the 26 years. Second, these results, and the ones
for the “Top 25,” “Top 50” and “All 100,” for example, stand in contrast to the returns on the
Wilshire 5000 and on the Russell 2000, which display positive returns in 21 of the years.
Third, the range of the results is wide. The “Top 5” registers a high of 217.79 percent and a
low of −64.22 percent, and the “Top 10” displays a high of 139.86 percent and a low
of −51.58 percent. As expected given their size and scope, the Wilshire 5000 and
Russell 2000 show the lowest return ranges, from −25.56 to 38.87 percent and from
−21.29 to 33.19 percent, respectively.
On the basis of the returns relative to those of the benchmarks, as indicated in the results
in Tables II and III, it appears that the greatest potential for information content is in
the “Top 5,” the “Top 10” and the “Top 25.” As a formal test of this observation, we use the
Q6 Wilcoxon signed-rank test, a distribution-free, non-parametric statistic that produces
powerful results when comparing two samples (Higgins and Peterson, 1998; Anderson and
Loviscek, 2005; Derrick and White, 2017). We test the difference between the 26 annual

Year Top 5 Top 10 Top 25 Top 50 All 100 W5000 R2000

1991 18.28 17.93 2.63 −7.37 −2.46 10.41 8.93

1992 85.56 56.74 58.23 55.88 36.49 17.25 33.19
1993 −15.53 9.42 0.10 0.59 4.59 4.77 5.87
1994 −35.25 2.14 4.79 17.12 22.37 21.95 20.83
1995 116.33 88.60 33.28 28.94 23.08 17.22 10.82
1996 42.14 41.33 43.96 43.54 50.55 37.28 28.96
1997 −44.64 −28.26 −35.85 −29.37 −32.41 2.67 −19.40
1998 69.14 79.51 73.49 47.74 51.52 38.87 28.36
1999 217.79 139.86 87.98 69.19 45.49 20.00 27.15
2000 −44.36 −40.44 −13.44 −10.10 −9.78 −25.56 −11.63
2001 −64.22 −51.58 −25.83 −34.69 −26.03 −16.56 −15.44
2002 45.72 44.22 28.49 29.06 29.79 14.86 29.08
2003 53.89 21.11 20.13 17.47 22.79 11.50 11.35
2004 7.00 −0.13 24.22 25.86 30.21 15.88 23.10
2005 −1.21 0.68 10.12 9.88 10.00 8.76 9.36
2006 40.76 19.09 23.34 15.14 11.36 15.59 11.36
2007 −15.18 −21.53 −18.11 −7.34 −3.73 −9.92 −5.48
2008 −59.70 −44.95 −33.52 −36.42 −27.71 −18.10 −21.29
2009 −18.15 0.67 3.86 3.63 4.84 6.50 6.60
2010 55.87 49.42 26.43 19.12 21.50 19.01 22.19
2011 11.28 10.85 11.66 3.41 4.42 16.53 13.40
2012 12.49 3.51 19.23 24.25 20.57 20.68 26.27
2013 30.53 33.26 24.56 21.84 22.38 24.72 17.68
2014 −2.54 −25.86 −17.09 −12.83 −7.11 −0.13 0.03
2015 3.47 0.81 6.02 6.01 −0.56 10.95 8.59
2016 −10.94 12.02 30.21 17.24 17.68 16.11 14.91 Table III.
Notes: Each year represents the one-year holding period rate of return. For example, −10.94 percent Annualized portfolio
represents the rate of return for the “Top 5” from September 2016 through August 2017. The returns on the rates of return
Wilshire 5000 and Russell 2000 are included for comparison (1991–2016)
MF Year Top 5 Top 10 Top 25 Top 50 Top 100 W5000 R2000

1991 33.21 25.12 25.17 23.99 24.75 13.44 15.91

1992 33.88 32.06 21.07 20.39 18.29 6.67 10.01
1993 25.00 19.96 19.00 18.48 17.87 9.30 11.37
1994 19.66 16.72 11.31 10.96 10.78 8.12 9.70
1995 28.64 25.74 21.63 21.88 22.36 9.27 15.55
1996 39.33 30.53 23.59 23.56 22.72 14.63 14.16
1997 39.64 39.65 30.47 31.62 30.29 21.01 25.48
1998 44.16 36.50 23.50 19.27 21.14 14.33 17.43
1999 63.00 42.75 37.43 32.54 22.71 16.75 26.33
2000 81.02 67.32 50.26 42.02 35.10 18.87 21.20
2001 61.63 59.22 47.31 42.19 36.34 17.83 26.53
2002 34.48 19.41 20.12 19.33 23.00 19.11 20.77
2003 21.96 18.16 15.43 14.93 12.34 9.55 14.45
2004 29.81 22.81 18.44 17.76 14.68 9.11 15.90
2005 22.06 18.97 18.56 16.56 16.59 7.13 14.04
2006 14.12 11.25 11.73 14.10 12.53 7.99 10.89
2007 31.46 30.24 24.20 21.46 20.19 13.93 16.39
2008 65.62 59.45 52.83 54.48 49.15 31.45 38.36
2009 27.93 23.63 20.80 22.62 20.06 17.86 23.33
2010 14.44 15.59 18.21 16.96 17.23 14.45 19.50
2011 26.64 25.55 31.49 30.12 26.85 17.61 22.95
2012 26.81 17.58 13.16 11.23 11.25 9.11 11.30
2013 17.16 14.73 15.39 13.83 12.97 8.70 13.92
2014 24.50 24.14 20.78 18.00 15.86 10.50 14.39
2015 37.74 26.61 22.38 22.13 18.99 13.46 17.20
2016 20.27 16.95 11.98 10.91 10.56 5.97 13.26
Table IV. Notes: Each year represents the one-year holding period standard deviation, or risk metric, for each portfolio.
Annualized portfolio For example, 27.20 percent is the standard deviation for the “Top 5,” in 2016, which ranges from September
standard deviations 2016 through August 2017. The standard deviations of the Wilshire 5000 and the Russell 2000 are included
(1991–2016) for comparison

mean returns of each portfolio and those of Wilshire 5000 and Russell 2000, respectively.
At the 5 percent level of significance, we have the following Z-statistics and p-values:
• “Top 5”: Z ¼ −0.038 and p-value ¼ 0.48.
• “Top 10”: Z ¼ −0.14 and p-value ¼ 0.44.
• “Top 25”: Z ¼ −0.65 and p-value ¼ 0.26.
• “Top 50”: Z ¼ −0.14 and p-value ¼ 0.44.
• “Top 100: Z ¼ −0.85 and p-value ¼ 0.20.
The sizes of the Z-values and respective p-values indicate there is not a significant difference
in the returns between any of the five portfolios and the returns on the Wilshire 5000.
Similar results hold when using the Russell 2000. While the higher mean returns on the five
portfolios in Table II relative to the mean return on the Wilshire 5000 suggest information
content, it appears that the higher returns do not compensate investors sufficiently for the
higher risks, as measured by the respective, and much larger, standard deviations. (We also
examine returns for firms that have a fiscal year-end in January and February. The returns
for the January year-end firms are similar to those of the December year-end firms. Only 35
firms report fiscal year-end February returns. The mean return is −5.25 percent and the
standard deviation, at 43.85 percent, is high. These results detract from those reported in
the tables. These results are available upon request.)
 Additional insight into the risks of the portfolios is given in Table IV, which shows the 100 fastest-
annualized standard deviation for each portfolio for each of the 26 years (and which make growing
up the averages shown in Table II). companies
The comparisons between these risk metrics and those of the Wilshire 5000 and
Russell 2000 are striking. The range is from a high of 81.02 percent in 2000 for the “Top 5”
to a low of 10.56 percent in 2016 for “All 100.” As expected in terms of naïve
diversification, the larger the number of stocks that make up the portfolio, the lower is the
portfolio’s risk. Thus, the “Top 5” shows higher risks than the “Top 10,” and “All 100”
displays the lowest risk. Again, by comparison, at 31.45 percent in 2008, the Wilshire 5000
registers its highest risk. Its lowest risk is 5.97 percent in 2016. The Russell 2000, with a
concentration in small-cap stocks, has higher risks than those of the Wilshire 5000,
38.36 and 9.70 percent, respectively.
Table V brings together Tables III and IV in terms of the standard Sharpe portfolio
performance metric (Sharpe, 1966, 1994, 1998; Levy, 2017). To obtain each portfolio’s excess
return, we use the annual three-month US Treasury bill return per each year.
Consistent with the numbers in Tables III and IV, Table V shows that portfolio
outperformance on average with respect to the Wilshire 5000 and the Russell 2000 is not the
case. In fact, the Wilshire 5000 displays the highest Sharpe ratio at 0.80, while the “Top 5”
shows the lowest at 0.59, the same as that of the Russell 2000. A clear pattern favoring the
portfolios is not conspicuous. In fact, the Wilshire 5000 outperforms in 36 of the 40 portfolio
Q12 comparisons from 2009 through 2016, years that mark a solid bull market. Confirming these

Year Top 5 Top 10 Top 25 Top 50 All 100 W5000 R2000

1991 0.44 0.56 −0.05 −0.47 −0.25 0.49 0.32

1992 2.41 1.65 2.58 2.55 1.79 2.01 2.93
1993 −0.77 0.28 −0.20 −0.18 0.04 0.10 0.18
1994 −1.99 −0.10 0.08 1.21 1.72 2.23 1.75
1995 3.93 3.29 1.36 1.15 0.86 1.44 0.45
1996 0.97 1.23 1.70 1.69 2.06 2.29 1.77
1997 −1.22 −0.81 −1.30 −1.05 −1.20 −0.06 −0.91
1998 1.48 2.07 2.96 2.28 2.26 2.44 1.41
1999 3.40 3.18 2.25 2.01 1.83 0.97 0.89
2000 −0.59 −0.66 −0.34 −0.33 −0.39 −1.56 −0.73
2001 −1.10 −0.94 −0.63 −0.91 −0.82 −1.14 −0.73
2002 1.21 2.08 1.23 1.31 1.13 0.58 1.22
2003 2.28 0.95 1.06 0.91 1.54 0.80 0.52
2004 0.11 −0.17 1.11 1.24 1.80 1.32 1.21
2005 −0.23 −0.17 0.34 0.37 0.37 0.69 0.39
2006 2.61 1.36 1.66 0.80 0.60 1.47 0.69
2007 −0.60 −0.84 −0.91 −0.52 −0.37 −0.99 −0.57
2008 −0.97 −0.82 −0.71 −0.74 −0.64 −0.70 −0.65
2009 −0.79 −0.13 0.00 −0.01 0.05 0.15 0.12
2010 3.60 2.92 1.24 0.90 1.03 1.05 0.94
2011 0.28 0.27 0.25 −0.01 0.02 0.72 0.42
2012 0.32 −0.02 1.17 1.82 1.49 1.85 1.99
2013 1.56 2.00 1.35 1.30 1.43 2.40 1.00
2014 −0.26 −1.23 −1.01 −0.93 −0.69 −0.38 −0.26
2015 −0.01 −0.11 0.10 0.10 −0.23 0.53 0.28
Table V.
2016 −0.73 0.48 2.20 1.23 1.31 2.06 0.84 Sharpe portfolio
Mean 0.59 0.63 0.67 0.60 0.64 0.80 0.59 performance measures
Notes: For example, −0.73 is the Sharpe ratio for the “Top 5” from September 2016 to August 2017. The across all years and
Sharpe ratios for the Wilshire 5000 and Russell 2000 are included for comparison all the portfolios
MF observations, we have the following “Z-values” and “p-values” at the 5 percent significance
level from the Wilcoxson signed-rank tests:
• “Top 5”: Z ¼ −0.83 and p-value ¼ 0.41.
• “Top 10”: Z ¼ −1.13 and p-value ¼ 0.26.
• “Top 25”: Z ¼ −0.85 and p-value ¼ 0.39.
• “Top 50”: Z ¼ −1.41 and p-value ¼ 0.08.
• “Top 100: Z ¼ −3.62 and p-value ¼ 0.16.
In all cases, the “Z-values” and “p-values” indicate that portfolio outperformance among
Fortune’s “100 Fastest-Growing Companies” is insignificant. The same conclusion holds for
the Russell 2000. Based on the results in Tables I–V and on the respective tests, we are
unable to reject the null hypothesis that the “Fortune 100” lacks the information content that
would help investors consistently to outperform a broad market index, whether it be the
Wilshire 5000 or the Russell 2000. All things considered appears that all that glitters is not
gold regarding these selections and their respective rankings.

Other considerations
It might be the case that information content exists in a shorter window than in one year,
given the rapidity with which information is incorporated into stock prices. As a test, we
look for above-average rates of return earned during the first month after the publication
date of each issue. Table VI presents the one-month rates of return for the five portfolios, the
Wilshire 5000, and the Russell 2000.
At the 5 percent significance level, we find the following “Z-statistics” and “p-values”:
• “Top 5”: Z ¼ −0.39 and p-value ¼ 0.69.
• “Top 10”: Z ¼ −0.39 and p-value ¼ 0.69.
• “Top 25”: Z ¼ −0.39 and p-value ¼ 0.69.
• “Top 50”: Z ¼ −0.39 and p-value ¼ 0.69.
• “All 100”: Z ¼ −0.42 and p-value ¼ 0.68.
None of the mean values suggests outperformance by Fortune’s listings. Additionally, none
of the p-values displays significance. The same conclusions hold when using the Russell
2000 as the comparative metric, especially because it displays the highest mean return at
0.39 percent. Thus, a shorter window than one year does not appear to reveal significant
information content.
As an additional test, we apply Modern Portfolio Theory (MPT), following in the spirit of
Fabozzi et al. (2002), who show the range of applications for MPT. As such, we use the
method illustrated in Elton et al. (1976). Applications of this method are also found in
Burgess and Bey (1988), Nawrocki (1996) and Loviscek (2015). The method consists of three
steps. First, Equation (1) is used to obtain each stock’s β. Second, there is the application of a
cut-off formula based on the ranking of the “excess return to β” for each stock from the
highest to the lowest, where “excess” means the average of each stock’s monthly returns
minus the respective three-month Treasury bill returns. The cut-off values determine which
stocks comprise the portfolio. Third, the weight for each stock is determined, taking into
consideration both market and idiosyncratic risks. The condensed results across the 26
portfolios are shown in Table VII, along with comparative results for the Wilshire 5000.
While the higher return, at 13.55 vs 10.82 percent, suggests the possibility of information
content, the higher total risk across the MPT portfolios, 30.22 vs 13.31 percent, significantly
 Year Top 5 Top 10 Top 25 Top 50 All 100 W5000 R2000
100 fastest-
growing
1991 −5.53 −2.20 −1.57 −1.77 −0.46 1.84 2.64 companies
1992 14.72 14.73 11.77 10.80 9.20 1.21 3.18
1993 −4.81 0.98 3.40 5.54 3.56 0.20 2.82
1994 20.98 18.59 9.89 7.86 8.54 −1.94 −0.33
1995 −0.05 −1.62 −0.71 0.99 −0.26 3.81 1.79
1996 −4.73 −3.90 −4.03 −2.08 −2.58 5.32 3.91
1997 15.08 15.96 9.70 9.39 7.86 5.90 7.32
1998 13.19 15.45 14.03 10.35 11.23 6.53 7.83
1999 8.94 5.85 2.29 2.75 −0.04 −2.61 0.02
2000 −11.85 −10.15 −2.88 −1.81 −1.62 −4.67 −2.94
2001 −28.48 −29.92 −24.77 −21.93 −18.40 −8.98 −13.46
2002 −12.14 −3.91 −7.65 −5.56 −7.45 −10.04 −7.18
2003 8.19 1.31 2.56 1.37 −0.54 −1.11 −1.85
2004 −5.57 −3.76 2.79 2.32 3.72 1.78 4.69
2005 3.83 −0.17 2.26 2.03 3.29 0.70 0.31
2006 1.55 0.27 0.11 −1.96 −1.72 2.29 0.83
2007 6.08 9.05 7.00 4.68 5.24 3.61 1.72
2008 −20.96 −21.89 −18.66 −19.31 −16.07 −9.36 −7.97
2009 −3.03 −2.31 −2.23 −0.53 0.96 4.19 5.77
2010 6.07 11.48 14.83 12.82 12.08 9.43 12.46
2011 −3.54 −8.43 −14.45 −15.01 −13.07 −7.75 −11.21
2012 5.57 3.58 3.19 2.94 3.14 2.63 3.28
2013 0.33 −1.41 6.61 6.25 6.62 3.78 6.38
2014 −9.67 −9.81 −9.82 −7.37 −6.60 −2.09 −6.05
2015 4.64 −1.52 −4.23 −4.30 −5.10 −3.12 −4.91
2016 −4.77 −1.98 0.82 1.50 0.73 0.22 1.11
Mean −0.16 −0.20 0.01 0.00 0.08 0.07 0.39 Table VI.
Notes: Each year represents the rate of return for one month after the publication date, which is usually early One-month portfolio
September. For example, −4.77 percent represents the return in September 2016 for the “Top 5.” The monthly rates of return
returns for the Wilshire 5000 and the Russell 2000 are provided for comparison (1991–2016)

Mean Rp Max. Rp Min. Rp βp σp Sharpe

Q11
MPT 13.55% 102.88% −60.30% 1.59 30.22% 0.50
W5000 10.82 38.87 −25.56 1 13.31 0.80
Notes: The table displays the condensed, one-year holding period results from applying MPT to each
of Fortune’s “100 Fastest-Growing Companies” (1991–2016): mean, maximum and minimum returns,
accompanied by the portfolio β, total risk and Sharpe performance measures. The Wilshire 5000 (W5000) is Table VII.
included for comparison XXXX

tempers this observation, as does the higher β at 1.59. The higher β is not unexpected when
noting the summary statistics in Table II. The comparative results of the respective returns
lead to a “Z-value” of −1.054 and a “p-value” of 0.29, indicating statistical insignificance at
the 5 percent level. Moreover, following Jensen (1968), we find that the portfolio α is −0.024
and is statistically insignificant (with a p-value of 0.67). Along with the comparative Sharpe
ratios, 0.50 vs 0.80, the evidence points to a lack of any significant information content in
Fortune’s “100 Fastest-Growing Companies.”
An investment of $1,000 in each portfolio would yield $135.50 in the MPT case vs $108.20
in W5000. However, for 1 standard deviation, the range of the MPT portfolio returns is from
−$166.7 to $437.70, which is much wider than that of the W5000, from −$24.9 to $241.3.
MF Another way to understand the return-risk trade-off is to use the Sharpe ratio. At 0.50, it is
lower than that of the W5000 by 0.30. As an interpretation, at a risk-free rate of 3 percent,
the W5000 portfolio has 7.82 percent excess return with a standard deviation of
13.31 percent. By comparison, the MPT portfolio at this level of risk has an excess return of
only 6.66 percent, which is lower than that of the W5000 portfolio by 116 basis points.
Although our focus is on a one-year portfolio investment strategy, one may argue that
investors react to the announcement positively and immediately. If this is the case, then an
event study can be applied to test for information content (Beaver, 1969; Fama et al., 1969;
Brown and Warner, 1985; MacKinlay, 1997; Keasler and McNeil, 2010). We first estimate the
equity β using the market model and then compute the abnormal returns during the
three-day (−1, 1) window for each year around the publication date of the issue containing
the list (Table VIII).
The CARs and the daily abnormal returns for the “Top 5” during the three-day event
window are negative and not significant. The CARs for the “All 100” during the
event window are significant two days before the announcement but are also negative.
The abnormal returns on the day of and the next day after the publication date are not
statistically different from zero. Thus, the results suggest that investors who buy either
portfolio are unlikely to realize market-beating returns around the publication date.
On the basis of all the results in this study, we are unable to find convincing statistical
evidence of information content. This suggests that the published criteria Fortune uses to
select the Fastest-Growing Companies are embedded in the prices of the stocks before
Fortune publishes its list. Thus, this study aligns with the literature that finds little
evidence, if any, of information content in public sources, such as in financial media outlets
and in investment newsletters.

Conclusion
For over a quarter of a century, Fortune has used revenue growth, net income growth and
total return to determine its “100 Fastest-Growing Companies” that are traded on major US
exchanges. A central, and yet unaddressed, issue is whether investors can use the list to
outperform a broad market index. Alternatively, and in the form of a question, does
Fortune’s “100 Fastest-Growing Companies” contain information content? This study
addresses this question from a portfolio perspective. It uses a series of tests to examine the
performance of the stocks of the 100 companies, guided by the hypothesis that the list does
not contain sufficient information content that would lead to the outperformance of a broad
market index.

Portfolio Window Abnormal returns t-Statistics p-Value

Top 5 (−1, 1) −0.44 −0.93 0.35

Top 5 (−1, −1) −0.30 −1.31 0.19
Top 5 (0, 0) −0.14 −0.55 0.58
Top 5 (1, 1) −0.01 −0.03 0.98
All 100 (−1, 1) −0.27 −2.70 0.01
All 100 (−1, −1) −0.22 −4.16 0.00
All 100 (0, 0) −0.01 −0.21 0.83
All 100 (1, 1) −0.04 −0.59 0.55
Notes: The table shows the outcome of the event study based on the three-day (−1, 1) window around the
publication date of the issue each year. The table reports the means of the cumulative abnormal returns
Table VIII. (CARs) and daily abnormal returns for the “Top 5” and “All 100” portfolios, the respective t-statistics and the
Abnormal returns respective p-values
 Because information content could be in a subset of the 100 firms, and because Fortune 100 fastest-
ranks the firms from 1 to 100, we track the one-year holding period performance of the growing
top 5 stocks, the top 10 stocks, the top 25 stocks, the top 50 stocks and all 100 stocks. companies
Relative to the returns and risks on the Wilshire 5000 and on the Russell 2000, the
statistical evidence is insufficient to reject the hypothesis, as demonstrated, for example,
by results from the classic Sharpe ratio. Recourse to an application of MPT leads to the
same conclusion. Moreover, an examination of the performance by using an event-study
approach around the announcement dates of the list of companies does not reveal
evidence of market outperformance.
Overall, the returns are not consistently high enough nor are the risks, as measured by
standard deviation and β, low enough for the portfolios to outperform either index, leading
to the conclusion that “all that glitters is not gold.” The results suggest that readers drawn
to Fortune’s “100 Fastest-Growing Companies” should view the firms skeptically as a source
for market-beating performance. The results align with the literature on the difficulty of
using public information to select securities whose risk-adjusted returns outperform a broad
market index.

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Further reading
Beaver, W.H. (1968), “The information content of annual earnings announcements”, Journal of
Q10 Accounting Research, Vol. 6, pp. 67-92.

Corresponding author
Anthony Loviscek can be contacted at: [email protected]

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