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While “brand value” doesn’t appear on financial statements, there is indisputable value in a brand. Venerable Coca-Cola is often deemed the most valuable brand on the planet and many other highly-valued brands date back a century or more. But things are changing in the soda, beer and even ice cream aisles. Relative ice cream newcomer, Halo Top, announced a possible sale that may value it at up to $2 billion.
Social media has made it easier for new brands to grow quickly, especially among younger consumers. Instagram pictures and Facebook posts influence the types of things Millennials want to eat, drink and wear. As we manage money for families, we focus on the three D’s: disintermediation, disrupters and distortion, and how they affect movements in consumer and business spending.
Disintermediation refers to suppliers formerly in the middle of a transaction who are suddenly removed from the equation. The financial services industry provides one example. When I entered the financial planning industry 30 years ago, a stock purchase necessitated a visit to an investment broker. Flash forward three decades and anyone can buy and sell stocks 24/7 from multiple locations – no broker required. The disintermediation of middlemen can contribute to falling prices although profits can change for better or worse.
Disrupters usually arise from new technologies but can also result from new government imposed regulations. Think about the number of items formerly manufactured by humans that are now produced by robots who don’t need a vacation and will work 24 hours a day when needed! Disruptors impact services too. For example, a new home screening test says it can replace colonoscopies for some people. The disruption is good for some and bad for others. Count on this: as profit potential and market demand grows, so will the number of disrupter participants.
Distortions occur when things get out of whack for one reason or another. Demographics are one of my favorite “distortion” conversations and the Baby Boomers’ behaviors have been studied for decades. People do very predictable things at certain ages. Historically, Baby Boomers were defined as those individuals born between 1946 and 1964, and for a sociologist that timespan is fine to describe the heightened birth rate following World War II. However, the real peak of the boom occurred between 1957 and 1961. Nearly one in every five American adults today was born in that timeframe.
The peak boomers are now between ages 56 and 60 and predictably, there are behaviors they are reducing, just starting and really engaged in! As money managers, our job is to consider those behaviors and decide what the future for a particular brand holds based on evolving demographic trends. Then our team looks at the fair valuation of the company and the technical indicators of the stock to see if we have a good candidate for the portfolio.
You cannot rely only on a brand’s image and market visibility. The three D’s can be dangerous to portfolios but they also spotlight potential opportunities.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.
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