Intangibles - brands

Brand is one of the "intangibles" that are hard to evaluate.

Came across this "Best 100 Global Brand" report in Business Week’s website.

We can get a glimpse of how brand can be evaluated from its ranking methodology.
This is one of the many ways to evaluate value of "brand".
evaluate "brand"

Step 1
Calculating how much of a company's total sales falls under a particular brand.
Projects five years of sales and earnings tied to each brand's products and services.

Step 2
Calculating how much of those earnings results from the power of the brand.
Strips out operating costs, taxes, and charges for the capital employed to arrive at the earnings attributable to intangible assets.
Estimates the brand's effect on earnings relative to other intangible assets such as patents and management strength.

Step 3
Future earnings are discounted against current interest rates and also against the brand's overall risk profile (to factor in brand strength) to arrive at a net present value.
Factors include market leadership, stability, and global reach—or the ability to cross both geographic and cultural borders.

Some "insights":
1.The same method should be applicable to evaluation of other intangibles too, for e.g patents, management strength etc.

2.Factors mentioned in step 3 is applicable to brands. To use the same method for other intangibles, other related factors are to be used.

3. We can learn ways to evaluate intangibles and related factors to use from methodology of ranking/index. Besides this ranking of brands, also mentioned in previous posts are WEF Financial Development Report and socio-economic risk.

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

One of Warren Buffett’s famous quote is:
Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1.

Let’s look at to what extent not losing money is important in investment.

To illustrate,
if an investor loses 10%,
how much percentage does he have to earn, to go back to the pre-loss level ?

When he lost 10%, he left with 90% of his initial investment.

To go back to 100%, he will need to earn back the 10% he lost using what he has now, 90%.
Profit% he needs = 10%/90% = 11.11%

To generalise, if he lost x%, profit% he needs, to go back to pre-loss level is x%/ (100% - x%) .

Look at the table and graph.

we will be able to see:
as we lose more, it is more difficult to earn back to pre-loss level.
Just imagine, if we lost 50%, we need profit% of 100% to earn back to pre-loss level !

Therefore, to stress again :
Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1. :-)

Economist: 张五常 Steven N.S. Cheung

Economists: 张五常 Steven N.S. Cheung
(His blog)
Strongly recommend :
张五常 Steven N.S. Cheung, a renowned economist with expertise in property rights, transaction cost etc.

Some compilations of his works (in chinese):
website

His blog and his articles are good read (and light-hearted too).

We will be able to gain insights on how property rights, transaction cost, supply and demand, methodology in economics theory are used in explaining and predicting real life outcome.

Some of his works are available in internet, in the format of PDF files or ebooks.

Corporate Governance, Shareholder’s Rights (1)

I have attended few shareholder’s meetings (AGMs) in Malaysia.

My general feel is that many, if not most shareholders,
do not uphold their shareholder’s rights.

In the AGMs, many shareholders merely attend to collect gifts, have meals,
become "Yes man" during votings and obstructing critical questions being asked in Q&A sessions. Unjustifiable praises are hailed on the management and Board of Directors even during cases when they should be criticised. Ridiculous questions are being applaused. Good, critical questions (sometimes being raised towards the end after finally getting their turns) are being jeered at.

One important concept is Board of Directors should act in the best interest of shareholders.
Shareholders pay them large sum of director’s fees to take care of shareholders’ interests and to act as check-and-balance for the management team. Need to make sure they do their jobs.

Hopefully this post can shed some lights on Corporate Governance and Shareholder’s Rights.

The Corporate Governance of Listed Companies: A Manual for Investors (from CFA Institute)
PDF file

One of the intangibles to look into a company when investing is Corporate Governance.

A number of studies show strong links between good corporate governance and strong profitability and investment performance (the studies are mentioned in above PDF file).
We need to pay particular attentions to the Board of Directors, Management and Shareowner Rights.

For Board of Directors,
take note of its independence, member qualifications, authority to hire external consultants, terms, related-party transactions and board committees.

For Management, take note of implementations of code of ethics, personal use of company assets and corporate transparency on executive compensation, share-repurchase and price stabilization program.

For shareowner rights, pay attention to shareowner voting and shareowner proposals.

The Manual is a great read !