What makes a company successful?...

... delivering products and services that are relevant and create impact among consumers.

I combine my expertise as a Marketing executive in a Fortune 500 company and my passion as an investor to find the Companies that I think have "cracked the code" with consumers. Advertising does work. When I see a new product that fits relevant consumer trends, and that is supported with a campaign that I find particularly shrewd and innovative, I know that Company is potentially a great investment.

One of the great investors of all times, Peter Lynch, recommends to "buy what you know". You watch TV, go to the supermarket and walk around everyday. Observe... look around: what you see can make you money in the stock market. Now, let's be clear: a Company is not good just because it advertises. What we have to look for is great products supported with -and enhanced by- great advertising. The principle is simple: if something is good enough to draw your interest, it will be of interest to millions of persons just like you.

It is my goal to share with the reader my findings in the world of marketing which I think will turn into great returns for investors. Profit from it!

Saturday, October 11, 2008

The glass is half-full

Gosh, what a week! Just last Sunday I wrote in a comment that I just hoped we hit Dow 10,000 this last week to get over with it. Right… be careful what you wish for!

I have no quantitative basis to say that the market couldn’t go any lower. But at Dow 8,500, a level not seen in six years –and hit first 10 years ago-, I can’t help but think this is a little overdone. Don’t get me wrong: I don’t think we are close to re-ignite a bull market. The economy is limping, and the prospects are not brilliant. We still need to see the credit mess solved, and the housing and jobs markets stabilized. But at this point, I can see the glass half-full:

a) The bail-out plan hasn’t even been activated yet. It should go great lengths in helping solve the fundamental issues in the financial system.
b) There is a coordinated international effort in facing the crisis.
c) The recent 50-basis points global rate cut should have a positive effect in the economy.
d) The Fed has been pumping tons of cash in the system for several months now. This cash is been hoarded due to lack of confidence and fear. It will have to be unleashed soon. Moving this cash is the essence of the banking business.
e) Commodity prices are falling, which should reduce pressure on the cost structure of manufacturers and help support profit levels.
f) There is significant consolidation taking place in the financial sector. The dead wood is being trimmed.

All the pieces are falling in place to finally put an end to this problem. Of course, we are not out of the woods. The measures the Government is taking are not without risk. On one hand, all this cash can have an inflationary effect when unleashed on the economy. On the other hand, funding the resources put by the Government behind trying to solve the crisis is likely to further weaken our fiscal situation. The Government doesn’t have access to unlimited resources, and there are only three ways it can finance this gigantic effort: printing money, borrowing or raising taxes. Of course, the healthier approach is to source the capital through taxation. It would have the double positive effect of addressing the crisis with organic resources and, at the same time, mopping up the excess cash injected in the economy, thus averting inflationary pressures. But higher taxes would put a drag on the economic recovery and therefore extend the recession. To partly address this issue, the Government needs to opt for the intervention mechanisms that imply no expense, but investment. The right approach therefore is to capitalize the banks through direct acquisition of equity. Some don’t like this approach because they argue this is equivalent to socialization and against the capitalist nature of our economic and political system. To those pundits I say: a) extraordinary problems require extraordinary solutions; b) the capitalist system just failed; if we are expecting the Government to solve the problem for us, we need to accept the consequences; c) the alternative is hypocritical capitalism: privatization of profits and socialization of losses. That just doesn’t fly. The fair course of action is to allow the taxpayers to partake in the profits if their action, through the Government intervention, helps the financial system to start generating wealth again.

There is simply no exit without pain. But from the two evils, I hope the Government chooses the one that at the end will result in a more solid and sustainable recovery, even if it takes longer. Therefore, this is what I’d like to see:
- I’d like to see the presidential candidates stop talking about tax cuts. We just can’t afford them.
- I’d like to see the bailout taking the shape of capital injections to the banking system as opposed to buying worthless assets. When the capital markets start working again, the Government stands to recover the resources invested this way.
- I’d like to see our political leaders proposing specific measures to reduce Government spend. There are no easy targets, but this needs to be done.
- I’d like to see leadership from the business community, also. The financial elite created this mess, and they should work together to propose and drive solutions to the crisis. Business leaders across the country should step up and help restore the broken confidence that is dragging the economy and markets down.

What does this post have to do with investing by advertising? Not much! But after this week, I just had to express my thoughts. It is usually easier to point out the negatives of a situation, but everything that has been done and will be done in the following weeks will have a positive effect that nobody seems to be acknowledging.