Skip to main content

The Globe and Mail

Barbara Gray’s path from income trusts to the rise of social capital

Tiffany & Co., a company Barbara Gray says has ‘heart’

© Lucas Jackson / Reuters/REUTERS

After the great wave of Canadian income trusts broke in 2006, top-ranked analyst Barbara Gray began to shift her focus. Now she is back on the map with a new job, and a new investing philosophy she thinks could change the way market watchers view social media.

After leaving Blackmont Capital Inc. in 2008, and then Odlum Brown Ltd. in 2010., Ms. Gray took some personal time off. She read dozens of business strategy books and wrote a report on social media as a "disruptive force" for companies. Almost a year ago she launched Brady Capital Research – an investment research firm built on the idea that the risk and growth profiles of companies can be seriously influenced by social media.

She's still working on that thesis, but has also recently joined Dixon Mitchell Investment Counsel Inc., a Vancouver-based firm where she'll manage the enhanced dividend portfolio – a career move a little closer to her roots.

Story continues below advertisement

Social capital has obviously become her passion, though, and Ms. Gray says it is quite unlike brand equity or goodwill. People don't really use social media to talk about a business's brand, but rather what the company actually stands for, and its actions. "The relationships companies have with their stakeholders and customers is more liquid than before the rise of social media, and consumers are better able to self-organize," she said. This creates new assets, but also liabilities.

She has three categories in which she places companies. All firms have a "shell" with a value proposition and a product or service that offers stakeholders financial and functional elements. Some companies, like Tiffany & Co., also have a "heart", which is comparable to a brand – something consumers recognize and like. A few firms, such as Lululemon Athletica Inc. and Whole Foods Market Inc. possess a "soul" – that is, an identifiable purpose where consumers are clear on what the company stands for.

This comes off as a bit warm and fuzzy for the average nuts and bolts investor, but it is consistent with Ms. Gray's personal style. As an analyst, she often included book references and recommendations in her reports (and even created year-end lists ). This is a tradition she keeps up today in the "library" tab on the Brady Capital Research website.

Ms. Gray wants to talk heart and soul, but she also wants to measure it. And she maintains that these levels of consumer connection are not only quantifiable, but also essential for understanding the long-term potential of a modern company.

This analysis helps explain why Yellow Media Inc.'s (formerly Yellow Pages) stock hasn't performed well. Ms. Gray was one of the first to downgrade the stock to "sell" before other analysts back in 2008. The company used to have a strong brand name and solid customer relationships, but when Ms. Gray wrote about the company in a report in early 2011 she remarked on the emptiness on the company's Facebook page and a lack of brand enthusiasm. Her theory has proven correct in this case, as Yellow's stock dropped , it cut its dividend and it filed to restructure.

As a self-described "creative person," Ms. Gray is looking forward to see how social media will evolve. She doesn't seem to be looking back, even though this coming Halloween will mark the sixth anniversary of federal Finance Minister Jim Flaherty's surprise announcement to slap a new tax on income trust distributions. Companies had increasingly been converting themselves to trusts, and just after BCE announced its own plans to turn Bell Canada into one to save hundreds of millions of dollars in taxes, Mr. Flaherty decided to crack down.

He said the increasing "trend to corporate tax avoidance," had to be stopped. The income trust market was rocked by this decision and billions of dollars in market value were erased from investor portfolios in the next day alone.

Story continues below advertisement

But that was then, and now Ms. Gray is working to develop improved metrics to help investors better understand the social media presence of consumer-facing companies. Brady Capital Research did one project for a New York hedge fund that looked at companies' transparency, authenticity and engagement using corporate Facebook and Twitter pages.

But while social capital could be a helpful yardstick for investors, it isn't without its disadvantages. First, the theory works best on companies working in the B2C space – food and fashion are good examples. LinkedIn could help bridge the gap in social capital becoming more valuable in the B2B arena.

Chipotle Mexican Grill is one of the firms that Ms. Gray identifies as being high in social capital for its community, growth strategies and founder-driven purpose, but the stock recently got presented as a potential candidate for shorting by David Einhorn – he said the product was expensive compared to Taco Bell's premium offerings. Disappointing quarterly results out last week caused the stock to drop.

That said, Chipotle's CEO Montgomery Moran said that none of his big competitor's advertising had an effect on the quarter's miss. And Ms. Gray said that companies with social capital do tend to be a little volatile in price, and are investments you look at for the long term. Exploiting workers may benefit a company in the short term, as it will show lower labour costs, but "in the long term, it will penalize them," Ms. Gray said. "The multiples on all my companies were astronomical, and up until recently most of them have done really well."

Report an error Licensing Options
About the Author
Financial Services Reporter

Jacqueline Nelson is a financial services reporter at the Report on Business. Prior to that she was a staff writer at Canadian Business magazine, covering news and writing features on a wide variety of subjects. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.