Wednesday, May 29, 2013

A Pin Lies In Wait For Every Bubble... Portfolio Hedging With Mega Brands

Think of a most instantly recognizable, global brand name. 

What is the first one that comes to mind?  Perhaps it’s Coca Cola, recognized at a great distance because of its shape, colors, distinctive logo, etc.  Maybe it’s seeing the golden arches of a McDonalds restaurant; a recognizable image of a brand name that allows recognition of the corporate entity without even having to read the word included in their brand getup.

How much is the brand worth… that word, logo, image, etc.?

Now think of what “brand” actually means.  Is it the word, the logo, the colors… or perhaps something else?  Good marketers will remind you that your brand is everything that you are and do, and not just how you appear, or how others may observe you. 

For example, if someone who is smartly dressed says something really stupid, would their personal brand be tarnished by what they said?  Politicians can easily attest to their brand being destroyed by their deeds and utterings, rather than their appearance.  For our entertainment, some politicians unfortunately remind us of poor brand management, all the time!

For corporations large and small, their services, products, employees e.g. servicing or invoicing clients, etc. are all extensions of their brand.  When a person says, “Company ABC sucks,” they’re obviously not referring to the logo, colors or design of their brand name, but rather the entire brand.   
Make sense?

Now let’s look at the value of some of well-known brands.  Valuing a brand is a subjective exercise, rather than a science offering any consistency in $$ terms.  Most people may agree that Apple is the world’s most valuable brand.  But, do you think that people living e.g. in a remote village in Asia, would agree?

During a Business Economics class discussion at high school, my teacher once confidently proclaimed that when a brand becomes a verb, then it has become most valuable.  An example of this, in my youth, would have been to Hoover the carpet.  This may have been overly simplistic, but yet of academic value, much in the same manner as we may currently offer to Skype someone.

But, Skype is a Microsoft product, much as Blackberry Messenger (“I’ll BBM you”) is a Blackberry product.  Microsoft is a global top-10 brand name, but Skype isn’t.  Blackberry (the corporation's new name) was only renamed to match Blackberry (the product name), a few months ago.  Previously, Research In Motion marketers were tasked with managing the company’s duality of brand (corporate vs. product name), in addition to the entire brand (as described above), i.e. siblings and children.

Think what brown can do for you perhaps doesn’t elicit excitement. But, people may automatically associate the slogan with UPS, and people may even offer “to UPS” (verb) a package to another person.  Tricky stuff, because sometimes a person may ship a product via UPS, but then tell the intended recipient that they had just Fedex’d it.

Marketing challenge!

According to Interbrand (2012), the top-3 brands were Coca Cola, Apple and IBM.  Google was ranked 4th.  According to Millward Brown’s latest BrandZ (2013) survey, the top-3 brands were Apple, Google and IBM (Coca Cola was ranked 5th).

When I look to invest in a corporation, their overall brand is one criterion ever-present in my company analysis, albeit not in the forefront of my investment criteria. In fact, every one of the companies included in my LT equity investment portfolio, is a brand name that most investors would be familiar with.

I don’t speculate with these equities, but rather trade them in an organized, pre-determined and non-emotional manner.  I occasionally take profit, reinvesting longer term gains and dividends, over and over again. The beauty of compounding! 

I do not make my investment selection based on familiar branding.  But, I am looking to buy a well-branded, successful corporation’s stock when it’s undervalued, or inexpensive.  Many tools are available to assist with the latter criteria, including a book with many more tips that I’m willing to recommend by Sean O'Shaughnessey, called THE CONFIDENT INVESTOR (click the link to view and buy on Amazon).

Is the investment equity target company’s brand important?  You betcha!  A mega brand that has stood the test of time, complemented by a strong management team will often have solid financial fundamentals in place already… providing a recipe for good, consistent, compounded growth… mitigating temporary market jitters as a result of volatility.

Disclosure: LT investment portfolio holdings include: BA, COST, DIS, GE, HD, INTC, KO, MSFT, PFE, TRV & WFC – YTD return 16.81% (including reinvested dividends)