Wednesday, August 2, 2023

Invest in Products People Love

A lot of times the best investment ideas are right under our noses. As individual investors and everyday consumers, we have an edge over Wall Street, because we can spot emerging products and services and get a feel for them early in the game. Other times, we may see products that seem to be dull or mundane, but enjoy a steady stream of recurring loyal customer purchases that grows over time.

In my experience, I have encountered an interesting phenomenon. Namely, that when I see company whose products or services are loved by customers, it is usually a good idea for further research. Now this may not always be a dividend growth company, but the principle still stands. 

It makes intuitive sense why a company whose products or services are loved by customers would be a good investment idea at the right price. If customers love that product, then you have an intangible moat around, especially if it is one of a kind.

On the other hand, you should not throw all common sense out of the window either. You still need to review the financials, make sure that the business is on solid footing, and make sure you are not massively overpaying for future growth.

Examples of companies I’ve observed where people love the product is chocolate or alcohol.

People love Lindt, they love Hershey (HSY), or Cadbury (MDLZ) or Lindt. They may also love Doritos (PEP).

People love Johnnie Walker Whiskey or Jack Daniels or Jim Beam or Heineken. They may love Coca-Cola (KO) or Pepsi (PEP) or some energy drink like Monster (MNST)

People love Apple (AAPL) products and wait in lines for a new phone release.

Some people love shopping at certain types of stores like T.J. Maxx (TJX), Target (TGT) or even Home Depot (HD) or Dollar General (DG). Costco (COST) members love shopping there.

Others love Chipotle (CMG), or Buffalo Wild Wings, Taco Bell (YUM) or McDonald’s (MCD).

Even during the pandemic and lockdowns, people lined up to buy their Starbucks (SBUX) coffee. This ought to tell us something.

These are just a few examples that came to mind as I was brainstorming. It's good to be on the lookout for good tasting products, which can be added to your list for future research. This is one of the methods I use to come up with investing ideas.

British fund manager Nick Train has a saying that if a company’s product tastes good, you should buy it:

The performance over the years of the holdings in AG Barr, Diageo, Heineken, Mondelez, Remy Cointreau and Unilever confirm the validity of this simple but powerful proposition. Indeed, Mondelez’ Oreos, Unilever’s Hellmann’s and Magnum and Remy cognac have all done particularly well during the pandemic (and boosted the shares of their owners) as consumers have turned to home cooking and consoling treats. Accordingly we are always alert to opportunities to add beloved or trusted consumer brands to the portfolio and over the last 18 months have initiated holdings in Fever-Tree, whose products definitely taste good and in PZ Cussons (“PZC”) whose products definitely don’t. Nonetheless, the general principle still holds for PZC. The same affection that drinkers have for Tanqueray, or chocaholics for Cadbury, is shown in the trust and reliance consumers have placed in PZC’s biggest brand, Carex – the UK’s #1 hand sanitizer – with spectacular growth this year.

The team at Ash Park seems to have confirmed that with some of their research. For example, investing in Swiss Chocolate company Lindt & Sprungli would have resulted in some sweet dividends and total returns for its shareholders over the past 50 years:

Relevant Articles:

- How to find companies for my dividend portfolio

How to get dividend investment ideas

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