This concept should be familiar to followers of the guru and value investing as well. Essentially, we should invest in companies that have a market share of our minds. The bigger the better.
Well, basically, we are talking about branding, but Mind Share sounds so cool right! So let's just use this term indiscriminately in this post.
For the uninitiated, let's try to define what's Mind Share.
In today's world, most of us suffer from information overload, everywhere we go, we get bombarded by sexy ads, bright slogans, spam emails, fancy taglines, funny ringtones etc. We used to just ride a bus. Now we flag down buses with huge ads, watch TV on buses while surfing the net with our PDAs, talking to our gfs/bfs on our mobile and listening to Ipod at the same time!
Everything is trying to get even the slightest attention of our hearts and minds, every minute of the day. In fact, all of us are now superstars, and all the products in our lives are fans demanding attention. So if some products can just get a tiny slice of our thoughts, wouldn't that be very significant? And the fact is, some brands in some products simply dominate people's brains.
Think soft drink -> Coca Cola
Think shaver -> Gilette
Think portable music player -> Ipod
Think search engine -> Google
Think luxury handbag -> Louis Vuitton
Think fuel efficient car -> Prius (or Toyota)
Think diapers -> Pampers
Think cheese -> Kraft
You get the idea, I hope...
One important tenet of value investing is that the business must have very high barrier to entry such that profits will not get eroded by competition. And branding is one such high barrier. Once a brand becomes synonymous with its product, it will take years or even generations to change that. The same goes for bad products. There is even a Chinese proverb: bad name smells for 10,000 years, right?
When a product has significant Mind Share, or branding power, it can command any prices and people will still pay for it. Even if competitors comes up with a better product, Mind Share is so powerful that it negates the positives of the newer product and urge the consumer to stick with the old one. Remember the Pepsi Challenge? People actually like drinking Pepsi more than Coke when subjected to blind tasting, but still, they will buy Coke over Pepsi anytime.
So does it make sense that Buffett owns some of the most distinguished brand names like Coca Cola, Gilette, Kraft? Why doesn't he owns Apple or LVMH or Toyota or Google? That's gotta do with Circle of Competence, which most people don't really practise even if they understand what it's about. That's topic for another day.
Back to Mind Share. If you come across a new product that has a piece of your mind and also a share of the minds of people you talked to, then chances are it has got a significant Mind Share (and most probably market share as well) and it makes sense to think that the business should be worth investing.
Of course, do more homework and research first. The amount of research done is inversely correlated with the probability of losing money!
One final caveat:
Think Efficient Government -> Singapore!
The future is bright for this Little Red Dot. Whether the heartlanders benefit is another question though.
Well, basically, we are talking about branding, but Mind Share sounds so cool right! So let's just use this term indiscriminately in this post.
For the uninitiated, let's try to define what's Mind Share.
In today's world, most of us suffer from information overload, everywhere we go, we get bombarded by sexy ads, bright slogans, spam emails, fancy taglines, funny ringtones etc. We used to just ride a bus. Now we flag down buses with huge ads, watch TV on buses while surfing the net with our PDAs, talking to our gfs/bfs on our mobile and listening to Ipod at the same time!
Everything is trying to get even the slightest attention of our hearts and minds, every minute of the day. In fact, all of us are now superstars, and all the products in our lives are fans demanding attention. So if some products can just get a tiny slice of our thoughts, wouldn't that be very significant? And the fact is, some brands in some products simply dominate people's brains.
Think soft drink -> Coca Cola
Think shaver -> Gilette
Think portable music player -> Ipod
Think search engine -> Google
Think luxury handbag -> Louis Vuitton
Think fuel efficient car -> Prius (or Toyota)
Think diapers -> Pampers
Think cheese -> Kraft
You get the idea, I hope...
One important tenet of value investing is that the business must have very high barrier to entry such that profits will not get eroded by competition. And branding is one such high barrier. Once a brand becomes synonymous with its product, it will take years or even generations to change that. The same goes for bad products. There is even a Chinese proverb: bad name smells for 10,000 years, right?
When a product has significant Mind Share, or branding power, it can command any prices and people will still pay for it. Even if competitors comes up with a better product, Mind Share is so powerful that it negates the positives of the newer product and urge the consumer to stick with the old one. Remember the Pepsi Challenge? People actually like drinking Pepsi more than Coke when subjected to blind tasting, but still, they will buy Coke over Pepsi anytime.
So does it make sense that Buffett owns some of the most distinguished brand names like Coca Cola, Gilette, Kraft? Why doesn't he owns Apple or LVMH or Toyota or Google? That's gotta do with Circle of Competence, which most people don't really practise even if they understand what it's about. That's topic for another day.
Back to Mind Share. If you come across a new product that has a piece of your mind and also a share of the minds of people you talked to, then chances are it has got a significant Mind Share (and most probably market share as well) and it makes sense to think that the business should be worth investing.
Of course, do more homework and research first. The amount of research done is inversely correlated with the probability of losing money!
One final caveat:
Think Efficient Government -> Singapore!
The future is bright for this Little Red Dot. Whether the heartlanders benefit is another question though.
The Chinese Herbal Medicine - Eu Yang Sang.
ReplyDeleteChewing gum - Wrigley.
Other than circle of competence, another reason for Buffett doesn't own some great company might be Margin of Safety.
Mind share is important, as a barrier to entry, but not all Mind Share companies are good investment. For example, DaimlerChrysler.
Research work is important.
That is quite true, margin of safety is a concept that a lot of investors understand but is too difficult to implement. Most likely bcos we are always so trigger happy and like to buy stuff without waiting for the real bargain!
ReplyDeleteYa, thats why Buffett also known as "patience" investor.
ReplyDeleteWe got to be patience, MOS decides the risk that we are going to face, the Cost and the Return.
Sometimes it takes experience and flare to differentiate good barriers from lousy ones. High profit margin and high turnover naturally attracts competitors. It will be another painful experience when one sees his/her companies' "barriers" being slowly torn to shreds by onslaught of competitors.
ReplyDeleteThus margin of safety is very important and the only true but uncomfortable armour an investor have is his/her patience.
This comment has been removed by the author.
ReplyDeleteHi Market Uncle, Sechai
ReplyDeleteThanks for commenting, that is very true! Patience and margin of safety, two most important tenets of value investing.