Investors typically fill their portfolios with brands they trust.
They tend to opt for investments with companies with which they agree with its goals and values as well as having an emotional attachment to the brand image.
Think of electric cars, for example, and it’s hard not to be impressed by Tesla. Its pioneering approach to one of the fastest emerging global trends, the switch to electric vehicles, has seen potential investors both crave its products and watch its rise to prominence in awe.
Often that perception of positivity comes from media coverage – providing a gauge by which to judge the marketplace’s enthusiasm for a brand’s products both now and in the future.
For those firms that bask in the glow of such valuable positivity, the benefits allow it to stand taller than its competitors – providing investors with confidence of growth in their equity share and in the management.
Take for example, the technology powerhouse that is Apple.
Advances in the smartphone and consumer technology sectors have seen its competitors catch up over the years and now offer very similar capabilities to its flagship models.
Yet despite its competitors breathing down its neck, Apple’s brand is perceived to create a more high-end, premium product in the minds of its target audience.
It has been a carefully manipulated, heavily invested in strategy – spearheaded by pioneering breakthroughs and calculated risks, but one which gives the company considerable kudos among investors who have been romanced by its marketing. Not to mention seduced by its seemingly unstoppable growth.
It has developed a committed customer base and one which can be relied on to buy future products – keeping it as the number one brand and retaining investor confidence.
Negative brand perception, on the other hand, can cause a loss of trust from their customers. This can lead to a loss in revenue and a resulting devaluing of the share price.
An example of this was the disastrous blow to Samsung’s brand perception and equity as a result of a manufacturing oversight in 2016.
It also highlights the perils inherent with emotional technological investments. Samsung had been a fast-rising competitor to Apple in a market where it was gaining market share and exciting investors. It’s rise in prominence appeared bullet-proof.
Yet, when batteries in S7 and S7 Edge phones began catching fire, negative headlines started to spread around the world. Approximately 2.5 million devices were shipped before any form of recall was issued.
As the problem escalated, Samsung eventually relented to the mounting public pressure and announced a recall, causing shares in Samsung to drop by 6.9% between the Korean Exchange’s close on Friday, September 9 and its post-weekend reopening on the Monday- the lowest it had been in months and one which, again, generated negative headlines which unsettled both consumers and investors.
The resulting impact led to an estimated $17 billion in lost revenues and a more worrying slump in investor confidence.
Today, of course, those putting faith in Samsung to turn its fortunes around will have been rewarded for their loyalty. But when it’s your money on the line it can create a desire to liquidate your assets for fear of further losses. Such are the inherent risks in buying and selling shares.
Researching a brand before investing in it should give you some degree of insight into how they are currently perceived. But, as always, it is by no means a guaranteed measure of how that brand image, and in turn the state of your investment, may change in the future.
Investors should recognise and accept the risks associated with investing.
Certain investments may require you to keep your holding for periods of many years with limited or no ability to resell unless there is a strongly regulated secondary market.
You may also have limited access to periodic reporting, see your holdings decrease and increase in value, or even lose your entire investment.
Investors should decide for themselves whether to make any investment, basing this on their own independent evaluation after consulting with financial, tax and investment advisors.
The Knowledge Hub does not constitute financial advice whatsoever, but rather provides basic general industry information.