Why Warren Buffet invests in companies with strong brand value
As an investor several factors determine whether or not you should invest in a company or business. Some look at profitability, revenue growth, dividend payment, competitiveness, market size etc. before deciding whether to invest.
However, there is one that stands out above many, BRAND VALUE. One of the world’s most followed investors Warren Buffet is known to invest in companies that have strong brand value. House hold names like Coca Cola, IBM, Pocter & Gamble (owners of Gillette, Pampers), Visa, Heinz (makers of tomato ketchup) etc. These companies all have world-renowned products that they sell. Locally we also have companies like Dangote Cement, GT Bank, Zenith Bank, Julius Berger, Mobil, MTN, Globacom as companies with strong brand value.
Why brand value
Warren Buffets believes in buying companies that have what he calls a strong “economic moat”. An economic moat is basically a strong competitive advantage that they have that can’t be easily challenged by new entrants or other competitors. To Warren, companies with strong brand values posses the economic moat that can withstand competition from new entrants. Without a strong brand value the moat perhaps is not there. And to prove just that, he owns shares in 15 of the top 100 most valuable brands in the world and owns 4 in the top 10.
The Nigerian stock exchange also boast of quality local brands in several sectors of the economy. As an investor, a key metric is to seek out companies with strong brand presence that can’t easily be challenged by competition. For example, in the banking sector which companies come to mind as the top three brands? What about construction? Fast moving consumer goods? Are they leveraging on their brand value to increase top and bottom line growth?
It is important to note that, whilst brand value is important it is not an end in itself. You cannot just invest in a company with a strong brand and then go to sleep (ask Union Bank shareholders). Therefore, strong brand value is one of those metrics that you must use to decide which company to invest in.