What country music taught me about investing
Well, I’m back from Tamworth.
(What? You didn’t know I was there? You really need to read more of my articles!)
For those who don’t know, I went to the Tamworth Country Music Festival with my young bloke for 4 days.
And if you get the chance, please go see Troy Cassar-Daley, The Bushwackers, John Williamson and Colin Buchanan together. They were all fantastic, and highly recommended.
You know, there’s something about these kinds of events. The atmosphere was warm and friendly. Everyone is there to have a good time. There were a lot of buyers left, but I didn’t see a single problem.
It was just a great time.
Now I can (fairly) talk about the beauty of our country, and (again) recommend that you go see it as soon as you can, if and when you can.
And I do want to thank those people who came up to say g’day, including Greg from Toyota, and Graham (aka Mr. Elvis).
But it’s not about me.
This is about some investment thoughts I had while I was away. They are loosely related, but each stands alone.
First, I was reminded of the power of community and of ‘fans’. Not just for music, and not just country music. But for artists and businesses in general. If a business can create not only ‘users’ or ‘consumers’, but ‘fans’, they are off to a very good start. And not just a good start, but a very good chance of continued business.
Greg said he loved working at Toyota because the product was just so good, and that people in the country loved their Toyotas. (I agreed – we have a Prado and a Hilux!)
Most of the fans at the concerts I went to weren’t at their first Troy/John/Bushwackers/Colin concert. They knew the music, they had seen the artists before, and they were back again.
See, fans aren’t just fans. They are usually repeat customers.
Tesla knows all about fandom. So does Apple. And RM Williams. And Toyota.
That’s the beauty of fans. Customers buy once. Maybe twice. But with fans you usually have repeat customers. Possibly for years.
Next, the value of what some people call ‘discretionary effort’.
While I was at the Wallabadah coffee shop (‘Best Coffee outside of Italy’ apparently!), a group was discussing some plans they had for their community. I didn’t want to eavesdrop so I didn’t hang around, but I could hear them discussing a plan for some kind of event or promotion.
Sure, this group might have been business people who would benefit from more exposure, or more people in town, but they were also trying to help the rest of the town. This is ‘discretionary effort’.
In a business, it is the extra effort that employees put in over and above the minimum required.
No, I’m not talking about exploitation – I’m talking about the extra effort people put in, usually when they believe in the mission or purpose of a company.
When they want their business to be successful because they see the benefit for all parties.
I’ve worked in businesses with and without it, and while it’s not a guarantee, it’s a good indicator of potential business success.
The last thing that struck me while I was gone was when my young guy and I were discussing hotel room prices.
We had to move hotels because he wanted to stay an extra day, and the one we were in was booked out.
Now, he’s 10, so I saved some of the detailed pricing lessons for another time, but he was interested in how and why different hotels charge different prices.
He gets the general relationship between price and quality, so he has determined that the ‘nicer’ hotels – in his world, are the ones with swimming pools! – charged more than the others.
And I explained that sometimes, like during the Country Music Festival, all the hotels were full, but they weren’t full all year.
And that was enough for him at least for now.
But it reminded me of the importance of really understanding a business’s economic model, especially when investing.
Which costs are really fixed? What is fixed in the short term but can be bent? And which costs are variable?
Having an understanding of those relationships can be very helpful, especially when you’re thinking about cyclical businesses or those with fickle customer bases.
What businesses will suffer during recessions? What will be resilient?
When does a sales downturn become uncomfortable, and when does it threaten a company’s viability?
And, for investors, what do you think about the right price to pay for those companies?
Now, there is much more to investing than these three observations.
But if you can put it together and answer those questions with some evidence-based confidence, I reckon you’re probably a decent way ahead.
A company with fans. Whose employees believe in the mission. And for which you understand the economic drivers and the impact on the bottom line.
If I were looking for a way to shortlist potential investments, I figure this is a pretty good filter.
And seriously, get out in the regions. You’ll be glad you did.