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Mind your own bias

May 02 2019 11:14
Simon Brown

Simon Brown, founder and director of JustOneLap.com.

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One of my biggest investment regrets is not buying Clicks way back in around 2006 at under 1 000c a share. 

I’d done the research and dug around the numbers and financial ratios and it looked like a decent stock with good potential. 

My concern was the actual Clicks stores themselves. To me they were overly bright and clinical in feel and the product line made no sense. 

So, I did not buy any shares.

The mistake was simple, I let my own personal bias form part of the investment process when it shouldn’t. 

I do not shop at Clicks, but let’s be honest: I am in the minority here. 

Literally millions of other South Africans love the experience, product offering and pricing.

Just because I believe something to be true, does not make it so. This has been a hard lesson for me to learn. 

Just because you had a bad experience at a retailer doesn’t mean everybody has the same experience.

Just because the day you went shopping the queues were long and slow doesn’t mean this is the experience at every store, every day.

The truth is that businesses mess up the customer experience sometimes. 

Equally, what we want and expect is not necessarily what everybody else wants and expects.

There are, however, two exceptions to this rule. 

The first is site visits. I was doing these for Clicks, but I did them wrong.

When Famous Brands* was on its acquisition spree, buying casual dining franchises and other smaller niche brands, a friend and I visited most of the new brands they were buying. We went for steaks, Mexican, Italian, chicken and more. 

The idea here was rather to try and understand the different brands, their target markets and how they fitted into the broader Famous Brands business model.

At the heart of the Famous Brands business is distribution and a central kitchen, and they can plug almost any food experience into that part of the business. 

But we wanted to better understand the actual experiences.

What we came away with (aside from a number of great meals) was that the signature brands were really all about quality food at decent prices in good locations and, overall, an enjoyable experience. 

This gave us confidence that then CEO Kevin Hedderwick was on the right path. 

This was of course until the indigestion from their Gourmet Burger UK acquisition kicked in. 

Another big part of the Famous Brands experience was consistency. 

When you order a burger from any Steers you expect it to be exactly the same as the same burger from any other Steers branch. 

So, we spent a few months eating Steers burgers from branches across the country to test the consistency. 

Again, we found every burger pretty much exactly the same – which is what you want from a franchise. 

Whether I personally liked the burgers was not the issue, plenty of people did.

The other exception when letting a personal bias form part of the process is ethical investing. 

For example, you may think gambling is immoral or that making money from smoking is depraved – so you choose not to invest in either of these industries. 

Sure, this does mean you may miss out on some profits, but putting principles ahead of profits is a perfectly good idea and there are many other less tarnished industries to invest in. 

But don’t let a personal experience that may differ from other people’s experience be the deciding factor on whether to invest in a stock that you have no moral objection to.

*The writer owns shares in Famous Brands.

investment  |  research
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