Is a Brand a successful Moat or Barrier to Entry?

Is a Brand a successful Moat or Barrier to Entry?

I’ve decided in the past, that a company’s brand was a strong enough moat to keep competitors at bay, and allow the company to keep earning profits  This has been a grave error, and warrants further study.  I’ve since learned that a brand, by itself, is not a strong competitive advantage resulting in a defensible economic moat.  For a strong moat a stronger situation needs to be in place such as some kind of customer preference, distribution or network effect that is the source of a strong competitive advantage.  Companies spend a lot of money on marketing and advertising to build a brand.  This usually entails messaging that relates the name of the company or product to some benefit.  The goal is to build that association into a customer’s (or potential customer) mind so that it becomes easy to recall in one’s mind at a later time. What I have discovered over time, and what others have written about, is that a brand, by itself, is easy to replicate by spending money.  Any company, with enough cash, can “buy up” to the brands advantage and receive the same value.  The only barrier is the needed investment to “buy up” to a similar…

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Size Matters, if You Control Your Junk

This is a new research paper published on January 22nd 2015 that studies the return of stocks based upon the size (defined in multiple ways).  What was done differently than other studies, was that the authors used a Quality and Junk variable to apply to the data.  The result was that smaller firms outperformed larger firms in the stock market if the portfolio was controlled with the QMJ (Quality Minus Junk) factor.  Meaning that a lot of the smaller companies were “junk” but the ones that were of quality outperformed the market. The Authors: Clifford S. Asness – AQR Capital Management, LLC Andrea Frazzini – AQR Capital Management, LLC Ronen Israel – AQR Capital Management, LLC Tobias J. Moskowitz – University of Chicago – Booth School of Business Lasse Heje Pedersen -New York University (NYU) – Department of Finance; Copenhagen Business School; AQR Capital Management, LLC; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER) You can Download the Paper from the website here, or I have it posted on this site here.   One interesting finding was that a lot of the return of small companies resulted in the month of January: One of the biggest challenges researchers pose to…

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The Average Investor is Terrible at Stock Picking

The Average Investor is Terrible at Stock Picking

Thanks to The Big Picture and Value Walk for bringing this chart to my attention that was included in a recent Seth Klarman note. Asset Class Returns vs the Average Investor   I’m not sure what most investors are doing with their investments, but it isn’t pretty.  In the above chart, it displays the annualized return over the past twenty years by asset class.  Farthest left is Energy which average just over 12% return per year for 20 years, and all the way to the right is Japan with a dismal 20 year return.  But look at where the Average Investor sits with a paltry 2.x% annual return over 20 years. I would like to see more on the specifics about how the data was collected and aggregated, but this is atrocious. The Average Investor has returned less annually than almost every other asset class shown, and the rate was just above inflation (depends on the inflation rate used).  The past twenty years have had a lot of ups and downs with the Internet bubble and then the Real Estate bubble causing the financial crisis deemed the Great Recession and so on.  I think many investors are emotional scarred, and…

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Questions about Bitcoin that I Would Like to See Discussed

Questions about Bitcoin that I Would Like to See Discussed

I’ve been interested in Bitcoin and the underlying technology for the past couple of years, and have tried to learn as much as possible about the technology and its potential use cases.  There is a lot of hype surrounding Bitcoin and the Blockchain, but I do not think many people posses enough knowledge about the technology.  I don’t claim to be an expert, but I’ve been trying to keep up with the technology, the current arguments as to why Bitcoin/Blockchain are important and finally what impact it will have on the future of money, currency, finance, trade, insurance, contracts, legal, or many other industries. As I read and think about the new technology, I stumble upon several questions that I would like to see discussed in more detail about the future of Bitcoin.  Most of the media articles today discuss the value or price of a Bitcoin and the high volatility of the price.  I’m not so much interested in that angle, as I believe the technology may enable mass disruption in several industries in the future.  I still have some questions that I do not know how to answer or would like to hear more opinions as opposed to the…

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Smart Links from February 9th 2014

Word Science of Social Media is an infographic created by ShortStack which analyses the titles for highest social media sharing.  The infographic is broken down by Twitter, Facebook and Blog and displays the words in title that get that most shares.  A good read if you want to increase your social media shares. Value Investing goes Back to the Future discusses the apparent change in thinking of value investors (according to Barron’s Conway).  In recent years value investors were concerned with bankruptcy risk and book values but it appears that might have changed to forward-looking metrics like p/e ratios. Vitaliy Katsenelson is always a good read and this week he wrote an article titled What I learned at the Mall about Investing.  It’s a piece about looking back on past mistakes (to try to avoid in the future) with regard to the retail industry. Microsoft, Past and Future by Daring Fireball is an excellent synopsis of Microsoft and what it may hold for the future MicroCapClub wrote up a quick article that contains statistics on micro-cap stocks.  There are 18,726 public companies on all U.S. exchanges (including OTC), with 16,710 companies sporting market caps greater than $1m. Bloomberg’s huge cash…

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5 Links to read for January 20th 2014

How Momentum Investors Create Narrowing Breadth – As momentum plays run out, investors pile into a smaller pool of stocks thus creating a narrowing breadth of options until no more options are available. No Silver Bullets in Investing – By James Moniter thanks for PMJar.com – A single silver bullet option is not available in investing no matter how much investors try to find it. How To Create Your Own Cryptocurrency – Have you thought about how to create your own Bitcoin?  Well, it’s really not hard to create a new cryptocurrency, but it’s much more difficult to make it successful.  Maybe someone can create an InvestCoin or ValueCoin currency? Why Duolingo Is Hands Down The Easiest Way To Learn A New Language – I’ve started using Duolingo to learn Spanish and find the application very useful.  With a trip last year to Peru and an upcoming trip to Chili I thought it would be useful to learn a bit of the local language. Twelve legendary investors on what to do with your money now – Some recommendations from famous investors on what to do with your money.  I’m not sure I agree with everything here, but it’s interesting to read about the…

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Good Reading from the week of January 20th 2014

Below are a collection of links that I have saved from my reading over the past week. Want a list of current EV/EBIT and EV/EBITDA ratios by industry?  Click here and you’ll see an updated list of industries with their EV/EBIT and EBITDA ratios as of this month.   The data is available as a download also from the link.  This comes from the great professor Damodaran. This article by Warren Buffet was dug up this week, and was written in 1999.  Remember 1999? That was the during the first internet stock market boom, and it is worthwhile to read what Buffet said during that time. Marc Andreessen wrote a good piece on Bitcoin and it is worth the time to read.  It is titled “Why Bitcoin Matters”, and lays out the idea that Bitcoin will be valuable as a payments protocol and not so much as a currency.  Even better, read a good response article on Andreessen’s piece. Have you ever wanted to go back 100+ years and read the articles and headlines in the papers, especially during the great depression and other historical time periods?  Well now you can, this great site has digitized newspapers going back many years.…

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My Recent Experience with T-Mobile vs AT&T

My Recent Experience with T-Mobile vs AT&T

I’ve recently had to update my cell phone situation due to work and a change in the cell phone policy.  What I thought would be something quite easy, to move the phone number to my personal account, turned out to be something more complicated and ended up giving me an excuse to try T-Mobile.  Some people may read this account and think that I’m being harsh with AT&T, but I couldn’t receive what I wanted as an end result, and now AT&T opened up the door for an existing customer to move to a competitor. I’ve been intrigued by the moves that John Legere has made at T-Mobile and their bid to grow their subscriber base by attacking the big two U.S. wireless carriers, AT&T and Verizon.  Smartly, T-Mobile has listened to the largest customer complaints and have provided a service solution that alleviates a lot of these frustrating rules, limitations, and costs associated with being a subscriber at other wireless providers.  As you can see in the stock price, T-Mobile ($TMUS) has had a very large return over the past year.  Subscribers are moving to T-Mobile, but why? TMUS 1 Year Total Returns data by YCharts  T-Mobile listened to…

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