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Buy These Companies and Ignore the NoiseBy
Wednesday, November 9, 2016
Former presidential candidate Mitt Romney responded to a heckler on a warm August day five years ago at the Iowa State Fair...
"Corporations are people, my friend..."
The press and his opponents ridiculed him for the statement throughout the election. But as he said then...
"Everything corporations earn ultimately goes to people. Where do you think it goes?"
Behind every investment we make in a company, there is a real business – with real people making decisions and products. Another set of people is deciding what to buy. And the success of your investment depends on the decisions that those folks make.
Too often, investors get caught up in macroeconomic trends and the drama of interest rates. It's easy to see why... This election cycle, we have presidential candidates promising to bring jobs to this country – never mind the fact that they have no power to do so.
It's no surprise that we've lost sight of what drives the economy. The only forces that can bring jobs... increase economic growth... and provide long-term prosperity for America... are businesses.
And behind those businesses are people...
At Income Intelligence, we use several tools – like our Income Triggers, portfolio theory, and economic data like interest rates and job reports – to give ourselves an edge. But in the end, you can't earn a dollar unless you have a business that consistently earns money.
Every asset – like a stock or bond – owes its growth, dividends, and interest payments to a management team operating in a competitive market for customers.
Investors love the story of a breakthrough product that will revolutionize the industry – even though most of those products fall flat. Investors love the discovery of a big gold deposit or a secret government decision that will send billions into a particular industry.
But it's far easier to be a great business by simply selling people a product they like... over and over again... for a good profit. And the long-term returns such a business can bring in are incredible.
The proof is in the brand...
The purpose of building a brand is to differentiate your product so you can charge a premium price.
Customers will pay more because they trust a brand to deliver a quality product. For example, while a generic bottle of bleach and a bottle of Clorox (CLX) are chemically identical, Clorox manages to charge about 60% more than the no-name brand.
In other cases, the brand is the entire product. Customers will buy clothing solely to display the label.
Every business would love to have the power of a strong brand... But developing one is difficult and expensive.
You either need to provide a high-quality product for many years or spend millions on marketing to make any headway into the saturated markets competing for consumer attention. Again, most attempts to build a new brand fail.
But once you've built a trusted brand, you have a license to sell more products at higher margins than your competitors. Strong brands encourage customer loyalty and boost margins. The concept of branding can be an investment thesis on its own.
You can look for these kinds of businesses with minimal analysis of macroeconomic trends... and with no concern for whatever the Federal Reserve or central banks around the world may do with interest rates or monetary policy in the coming months.
It's exactly how you should always be thinking of investing.
Here's to our health, wealth, and a great retirement,
Further Reading:
Earlier this year, Porter explained why a strong brand name is one of the keys to market-beating results. Get the full story – and learn the rest of the criteria for "magic stocks" – here.
"The urge for 'action' is one of the hallmarks of the average stock market loser," Dan Ferris writes. "But investing isn't about action and excitement. That's what Las Vegas casinos are about." See why he says "boring" businesses are better than "exciting" ones here.
Market NotesTHE BULL MARKET IN LIVE ENTERTAINMENT Today's chart highlights a growing entertainment company...
In 2010, concert provider Live Nation and ticket seller Ticketmaster merged, forming Live Nation Entertainment (LYV). The $6 billion company promotes and hosts live events around the world. Last year, it hosted more than 25,000 events for 63 million total attendees.
Live Nation generates most of its business from concerts, ticket sales, and advertising sales... And it's on pace for a record year. Earlier this week, in its quarterly earnings release, the company said it expects more than 70 million fans to attend its events this year – an 11% increase from 2015 numbers.
As you can see from the chart below, LYV shares are benefiting from this trend. The company is confident it will continue to see strong demand... And it looks like fans agree. Shares are trading near a 52-week high and are up more than 40% over the last nine months.
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