Shingo Investing: a Losing Bet
I've always wondered how you would do investing in Shingo Prize winning companies. There is quite a bit of debate going on in the lean blog world about the Shingo committee continuously awarding plant-level lean achievement prizes to bankrupt companies, namely Delphi.
I'm not an investment analyst. But, I put forth this hindsight investing plan:
- Starting in 2001, invest $10,000 in a portfolio of Shingo winning companies. Hold the stocks for a year, then count your gain/loss and reinvest what's left in the next year's Shingo winners.
- I'm approximating a bit by measuring stock returns from Jan 1 to Jan 1 of consecutive years. The Shingo Prizes are awarded in February, I believe.
- Each year, I re-allocated the portfolio by the number of plants from each company that win a Shingo Prize. I had to ignore the privately held or family held companies.
- Example for 2002: Bridgestone, Delphi (5 plants), Ensign-Bickford (private), Ford (3), Freudenberg-NOK (JV, not traded), Lockheed, Tyco
- I estimated starting and ending stock prices the best I could from Fidelity charts. I didn't obsess over finding the exact stock price, but I think I had the stock prices +/- $1.
The news isn't good. I even tried to see what would have happened if you ignored Delphi completely. There were a few special cases, such as Tyco, which fell apart for reasons far outside of manufacturing.
The hypothetical portfolio lost money 4 out of 5 years. Starting with $10,000, you would have had only $2540 left after five years. The only good year was 2003, when that year's portfolio returned 57%, thanks to Symbol Technologies stock doubling and Autoliv rising from $8 to $14 a share.
Ignoring and eliminating Delphi, the allocation of each year's portfolio shifted. Since Delphi has won more Shingo Prizes than any other company, 20 of them, their bankruptcy and stock performance severely impacted the portfolio and returns. Without Delphi, the portfolio lost still lost 55% of its value over five years.
So is there a lesson to be learned? I think I wouldn't bet my retirement on the 2006 Shingo winners. For one, Delphi won 4 of the 10 prizes. I believe that Autoliv and Steelcase are the only two publicly traded companies out of the rest. Either way, it's obvious that the Shingo Prize is not a forward looking indicator of a company's stock price.
Update 3/10/06: Another run of the numbers, including Delphi, but weighting the private companies with the “Russell Small Cap” index as a proxy for the private company stock prices, the portfolio return is still a loss of 59%
Update 3/15/06: Industry Week Best Plants Investing…
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