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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Company Turnarounds are Hard

Our conclusion is that, with few exceptions, when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact – Warren Buffett   Turnarounds seldom turn. – Warren Buffett I’ll admit that I am interested in finding companies that are in a turnaround.  I feel that if I can locate a company that will be successful, it will result in a high return on my investment.  However, if you are experienced in the markets, or have worked for a company that is in a downward trend, you’ll know that it is very hard to turn a company around.  I have worked for a company that I would classify as in a “death spiral” where revenue and profit are continually decreasing and it is very hard to change the course.  This usually happens with a company that is in a market in decline and being overtaken substitute products or companies thus eliminating any advantages that the company had been relying upon. So, how come I hunt in territories where Warren Buffett and others have warned investors against?  Because for one, I think that it is an…

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100x The Power of Growth in Wealth Creation

100x The Power of Growth in Wealth Creation

Thanks to Ian Cassel from MicroCapClub for tweeting out a link to a paper produced by Motilal Oswal which is a study on companies that have gone on to become 100 baggers within that past 5 years.  A 100 bagger is a company whose share prices as increased 100 times the initial price, or in other words, the company has experienced tremendous growth that has translated into tremendous share price gains. A really great paper analyzing 100-baggers H/T @Anil_Tulsiram http://t.co/Qcoj5cq7Rx Wish someone would do this here in the US #investing — MicroCapClub (@iancassel) December 16, 2014   100x The Power of Growth in Wealth Creation is an excellent read and is under 50 pages long.  The companies used in the study are all in India, however, the study still produces some great insight.  The authors state that they are value investors, and often quote other prominent value investors throughout the paper.  Apparently  this study is written  every year and includes a new 5 year period ending with the current year.  This years study begins in 2009 and spans through 2014. My favorite section of the paper includes this chart: Here the authors have broken down the 5 elements that make up the…

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Critical Change within Value Investing?

Last month Barron’s published an article by Brendan Conway named Value Investing goes Back to the Future.  In the piece, Conway goes on to try to establish the premise that value investors have changed from using historical prices or backward-looking measures to more risky forward earnings or forward-looking measures. What exactly is value investing? Value investors buy attractively priced stocks, but there are backward-looking measures, as well as forward-looking ones. Lately, the forward measures are winning, and that fact tells an interesting story about what’s driving investors. When value investors start to use forward-looking measures, I immediately begin to think that investors have begun to use more risky predictions on future growth to value stocks and the market overall.  Actions that price stocks/businesses based upon risky future predictions have a high degree of variation and are highly inaccurate.  I’m hoping that value investors are not chasing stocks as prices have risen over the past 5 years since the Great Recession. I’ve noticed that I have caught myself thinking about justifying the stock price of a few companies that I really like, but the price is a little too rich for my liking.  I have an internal voice that tries and rationalize…

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Learn Financial Statement Analysis from KhanAcademy.com

I haven’t been very good a keeping up with posts, but I am going to change that and start to post more regularly during 2013 and beyond. I finally decided to check out KhanAcademy this past weekend.  I have heard quite a bit about the site from various locations, and wanted to try it out.  To my surprise, the site contained a lot of good information about finance and economics.  If you do not know about KhanAcademy, then you can read up more about it on their about page. They have a whole section on Finance and Capital Markets which I found to be introductory, but still informative.  It never hurts to cover the basics, and I always find that I pick up something new when I review material about the basics of concepts.  I found the videos to be very well done and informative. For instance, in the Accounting and Financial Statements subsection, videos cover: Cash vs Accrual Accounting Three Core Financial Statements Depreciation and Amortization In the Stocks and Bonds subsection, videos cover topics such as valuation, Return on Assets, P/E discussion, Enterprise Value and EBITDA.  I have viewed many of the videos, but there are so many that…

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Value Investing Articles to Read – New or Seasoned Investors

Geoff Gannon from Gannon on Investing was recently hired on at GuruFocus.com.  Geoff writes the monthly Buffet/Munger and Net-Net Pick Newsletters.  Since starting at GuruFocus, he was been writing some great articles on value investing by answering a specific email from a reader.  The articles are very good, and cover a range of topics.  I wanted to link to the articles that I think should be read. What Would Value Investing 101 Look Like How to get the Most from an Annual Report What’s a No Growth Business Worth?   Geoff has written a lot of articles, so take a look at his other articles to continue reading.

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