Over the past few weeks, I have been doing very interesting research in the real world. I'm surprised how much little work has been done in the world of finance and investing by conventional academics. When it comes to investing, a lot of things go into it. But one very important thing, most conventional academics forget to point out is the value of trust. Investing has a lot to do with trust. If you trust a company - at some level, only then will you proceed to invest. You work with people - only when you at some level trust them. You hire someone only when you trust them and you work for your company only because you trust them to pay you and take good care of you.
Trust is one of the most important 'assets' in the modern day world. It is usually the basis on which business is done. Now overtime, I have realize that Trust also helps increase valuations, sales and enhances productivity. If a company has the asset of trust, people will it money for their future ventures, they will its causes and will buy its ideology. In spite of this I find it shocking how so many people are willing to sacrifice this wonderful asset for a quick buck?
In a world where more and more scams are being unveiled, corruption is rising - trust becomes a even more important asset. I know of a lot of companies and individuals, who charges almost 50% more than their peers just because of the trust they enjoy. Companies that have this advantage are a real cash cow, because long term trust can't be created with the help of advertising or PR - but needs to be created from the ground level. It is a great competitive advantage.
For instance a particular local developer in Khar-Bandra, Mumbai has built such a reputation over the past three decades, that enables him to easily charge a premium of 25% for a similar product. For a property priced at Rs. 6 cr., a 25% increase in margin compared to competition works out to be a very large amount. He has not spent a single rupee on branding or billboard marketing, just worked to create trust amongst the local community by being honest to his word. Even a large national developer with a big budget for advertising would not be able to do this with a local community. These are the type of businesses, which make sense investing in.
Surprisingly on the stock market a few big names that enjoyed trust, have done a few things to spoil that trust. I'm sure all of you know which names I am talking about. But I do see a few new businesses, emerging that are going to stick to their moto of doing no evil.
I would love to hear from you - which business models you think have an extra competitive advantage of 'trust'?
Also Quantum Dynamics, has been lovely as always and organized a day long program on Happionaire Investing in Mumbai. It's at the Bombay Gymkhana on Saturday, 16th July 2011 from 10 to 5:30. To register contact I do hope to see all Happionaires from Mumbai.