Please ensure Javascript is enabled for purposes of website accessibility

The Greatest Forecasting Metric You’ve Never Heard Of

By Anna B. Wroblewska - Jan 4, 2015 at 8:56AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are many ways to predict a company’s future performance, but we can guarantee you’ve never heard of this one.

Some CEOs are larger than life, like the Steve Jobses and Warren Buffetts of this world, who come with their own cults of personality. But most other corporate CEOs fly decidedly under the radar -- we don't know who they are, really, but we figure they're influencing their companies in some way.  

Measuring that impact isn't so simple, however, considering how big and complex most publicly traded firms are. So how can you figure out what an individual CEO is contributing to their organization?

One easy way to glean insight: just look at their signature. 

The hidden data in your John Hancock
It sounds like a parlor trick, but a recent study found a surprising relationship between a CEO's signature and his or her company's economic performance. 

And it was all explained by narcissism. Using a 16-item psychological inventory that measures narcissistic tendencies, the researchers found that signature size was curiously correlated with the average narcissism score (measured as the number of "yes" answers to the 16 questions). By breaking up signature sizes into quartiles -- in other words, ranking them by smallest 25%, next biggest 25%, etc. -- you can see a clear pattern emerging: 

The researchers found that the size-per-letter of a person's signature is correlated to narcissism (the higher the area per letter, the greater the narcissistic tendency). To see if narcissistic CEOs might also impact their company's performance, the researchers also measured the signatures of 449 S&P 500 company CEOs and compared them to the company's financials.

Large-signature CEOs led their company's to lower patent counts, fewer patent citations, lower returns on assets, and lower future sales and sales growth.

In other words, narcissists are not good for business, which might also explain why they also tend to have shorter tenures as CEOs.

Where do they come from? 
You might wonder, of course, if it is really the CEO doing damage, or if narcissistic CEOs are just attracted to companies that need to be turned around or are having tough times in general.

Looking across time periods, it turns out that it really is the big-signature, narcissistic CEO causing all the trouble.  

In fact, the study found that some financial indicators become more influenced by the CEO's narcissism over time, rather than less, which underscores the importance of the CEO to company performance. 

The worst part? Those CEOs the study identified as narcissistic also got paid more.

Uncovering the narcissists
Actually going through the process of measuring signatures and comparing them across companies might be a bit much for the average 10-K reader. 

So if you want just a little insight into CEO (or other executive) narcissism, you can gather your clues in two ways. First, you can just look. After all, we all kind of all know what a big John Hancock looks like. Second, you can use a simplified measure that the researchers also tested: they developed a point system, adding one point for every full name or initial used.

So William Jefferson Thomas Marshall would get 0 points if he signs "Bill," 1 point for "William," and so on for each additional initial or name. More points means the person is more likely to be a narcissist. 

This is not nearly as precise as the measurement technique used by the researchers, but they found that it was also fairly predictive of key economic returns.

Either way, try looking at the signatures on your companies' annual reports. It might not change your performance prognosis, but at the very least it's an interesting little factoid -- not to mention a fantastic party trick. 

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.