In Search of the Perfect Investment

Ms Yellen is not changing Bernanke’s policies. Good lady. Good for the stockmarket.

Nice movement in Ladder Capital. I like this stock. It’s not “hot”, but it will move solidly higher and it will pay a handsome dividend soon — despite what the red herring says. Click here: Ladder Capital.

Nice recent movement in NLY: It’s coming back. And it pays a nice 11% dividend, which is far better than a slap in the belly with a cold fish.

I own a lot of Annaly and Ladder.

The power of the Internet and the decline of brands. You live on your last product, not on your reputation. That’s obviously an exaggeration. But read James Surowiecki’s latest wonderful piece in the New Yorker.

Twilight of the Brands
by James Surowiecki February 17, 2014

Twelve months ago, Lululemon Athletica was one of the hottest brands in the world. Sales of its high-priced yoga gear were exploding; the company was expanding into new markets; experts were in awe of its “cultlike following.” As one observer put it, “They’re more than apparel. They’re a life style.” But then customers started complaining about pilling fabrics, bleeding dyes, and, most memorably, yoga pants so thin that they effectively became transparent when you bent over. Lululemon’s founder made things worse by suggesting that some women were too fat to wear the company’s clothes. And that was the end of Lululemon’s charmed existence: the founder stepped down from his management role, and, a few weeks ago, the company said that it had seen sales “decelerate meaningfully.”

It’s a truism of business-book thinking that a company’s brand is its “most important asset,” more valuable than technology or patents or manufacturing prowess. But brands have never been more fragile. The reason is simple: consumers are supremely well informed and far more likely to investigate the real value of products than to rely on logos. “Absolute Value,” a new book by Itamar Simonson, a marketing professor at Stanford, and Emanuel Rosen, a former software executive, shows that, historically, the rise of brands was a response to an information-poor environment. When consumers had to rely on advertisements and their past experience with a company, brands served as proxies for quality; if a car was made by G.M., or a ketchup by Heinz, you assumed that it was pretty good. It was hard to figure out if a new product from an unfamiliar company was reliable or not, so brand loyalty was a way of reducing risk. As recently as the nineteen-eighties, nearly four-fifths of American car buyers stayed loyal to a brand.

Today, consumers can read reams of research about whatever they want to buy. This started back with Consumer Reports, which did objective studies of products, and with J. D. Power’s quality rankings, which revealed what ordinary customers thought of the cars they’d bought. But what’s really weakened the power of brands is the Internet, which has given ordinary consumers easy access to expert reviews, user reviews, and detailed product data, in an array of categories. A recent PricewaterhouseCoopers study found that eighty per cent of consumers look at online reviews before making major purchases, and a host of studies have logged the strong influence those reviews have on the decisions people make. The rise of social media has accelerated the trend to an astonishing degree: a dud product can become a laughingstock in a matter of hours. In the old days, you might buy a Sony television set because you’d owned one before, or because you trusted the brand. Today, such considerations matter much less than reviews on Amazon and Engadget and CNET. As Simonson told me, “each product now has to prove itself on its own.”

It’s been argued that the welter of information will actually make brands more valuable. As the influential consultancy Interbrand puts it, “In a world where consumers are oftentimes overwhelmed with information, the role a brand plays in people’s lives has become all the more important.” But information overload is largely a myth. “Most consumers learn very quickly how to get a great deal of information efficiently and effectively,” Simonson says. “Most of us figure out how to find what we’re looking for without spending huge amounts of time online.” And this has made customer loyalty pretty much a thing of the past. Only twenty-five per cent of American respondents in a recent Ernst & Young study said that brand loyalty affected how they shopped.

For established brands, this is a nightmare. You can never coast on past performance-the percentage of brand-loyal car buyers has plummeted in the past twenty years-and the price premium that a recognized brand can charge has shrunk. If you’re making a better product, you can still charge more, but, if your product is much like that of your competitors, your price needs to be similar, too. That’s the clearest indication that the economic value of brands-traditionally assessed by the premium a company could charge-is waning. This isn’t true across the board: brands retain value where the brand association is integral to the experience of a product (Coca-Cola, say), or where they confer status, as with luxury goods. But even here the information deluge is transformative; luxury travel, for instance, has been profoundly affected by sites like TripAdvisor.

For consumers this is ideal: they’re making better choices, and heightened competition has raised quality and held down prices. And they’re not the only beneficiaries; upstarts now find it easier to compete with the big boys. If you build a better mousetrap, people will soon know about it. A decade ago, personal-computer companies like Asus and Acer had almost no brand identity outside Taiwan. Now they are major players. Roku, a maker of streaming entertainment devices, has thrived even though its products have to compete with similar ones made by Apple (which is usually cited as the world’s most valuable brand). And Hyundai has gone from being a joke to selling four million cars a year. For much of the twentieth century, consumer markets were stable. Today, they are tumultuous, and you’re only as good as your last product. For brands like Lululemon, there’s only one consolation: make something really great and your past sins will be forgotten. 

The piece is here.

Things I learned recently:

1. Email sucks. Face-to-face gets things done. When in doubt, pick up the phone. Don’t ever bitch, complain or criticize in an email. Emails are for confirming appointments and for praising people.

2. Every online trading platform has flaws. What you see on screen is not what you own. Refreshing and logging back in occasionally works. What really works is my mantra, CHECK, CHECK, CHECK.

3. “The Truth About The Upcoming Financial Collapse” is that the email is spam and it’s all Obama’s fault anyway. I am also no longer shocked by what “Obama is hiding,” nor do I care any longer.

4. A good reason not to put Jews in prison is that kosher food costs 60% more. At least that’s what California prisons are finding out.

5. I’m crazy-super-glueing the little switch on the side of the iPhone. The thing turns off in my pocket, then I don’t hear it ring. Then I miss a call from Susan telling me to pick up milk and OJ.

6. Somebody in TV land is in love with somebody who loves curling. You and I get the “benefit” of this love affair by watching the world’s most boring “sport.”

7. It’s very, very time-consuming to research stocks. Most of the time you end with a NO, which is now the most expensive word in the English language.

10 essential time-saving Photoshop tips. Adobe’s Photoshop is fabulous. I use it several times a day. I use it to resize, sharpen and clean up photos and illustrations for this blog. I use it to clean up family photos. I remove zits, wrinkles, blemishes… It’s wonderful. I only use Photoshop to about 3% of its capabilities. Here are ten short tips. Click here.

Favorite sick news story.

“Copenhagen Zoo Feeds Giraffe to Lions in Front of Children.”

After the predictable public outrage, Zoo spokesperson Tobias Stenbaek Bro  told Associated Press that watching the lions eat the giraffe the zoo had killed gave children “a huge understanding of the anatomy of a giraffe.”

I don’t make this stuff up. Click here.

Harry Newton who played three hours of aggressive tennis yesterday and feels like a million dollars this morning. New York City has azure blue skies. No a single cloud. I’m on top of the world. Halleyuyah!