Tuesday, July 5, 2011

The Valuations of Trust

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 Neha – +91 9971346274 or - Mahesh- +91 9920846517 or e-mail at info@qudyn.com . (Thanks to Jasmine for pointing out the typo and her sense of humour!)

I do hope to see all Happionaires from Mumbai. It should be good fun sharing ideas and looking into the future of investing! I'm sure all those who attended our last session in Delhi will agree on that. Specially after what happened to Petrol prices since then.

Have fun and happy investing!
Yogesh Chabria


Jai said...

I always discover something that is not the norm here Yogesh ji and that is why I always wait eagerly to hear from you through this wonderful blog. You are right when you speak about trust, but do you think some people by being trustworthy are in fact fooling and taking advantage of others? For instance this developer - do you think he is taking undue advantage of others by charging 25% more than competition? From an investors point of view it is great, but what about from a social point? Hope to see you one day here in New York. Hope all fellow Mumbai Happionaires have fun in the program!

Harman said...

What Yogesh ji is saying is right Jai.As society or market, we need to reward those who create trust and honor it. Today a man who cheats is automatically punished by the market as people stop working with him and he can't charge a premium.

As always something very different and unique here.

Will try to attend the program as I will be visiting from Dubai.

Harsh Munjal said...

one trust that i notice is that indian banking stocks would not become zero, though there may be other problems with the banking systems, but the fear of losing all my money is not there like the silverline or DSQ or fly by night operators stocks

Bhavesh said...

I am just wondering.. How is the 'brand value' different from 'the valuations of trust'? Am I missing something? If not then let's look at it from Happionaire's point of view.. From one of Yogesh' books, Is there a brand that my grandmother was using and even after this great technological advancements, even today, I am also using the same brad? And may be, it's not less likely that my grandchildren would also use the same brand..

I log a service request at 8am or 8pm and without doing any followup I know for sure that it's going to get resolved within 4 hours.. For me this is trust.. and I love this company as I enjoy it's mobile service, fixed line service, broadband, Digital TV and now even IPTV :-)

Naresh Pisharody said...

Hi Bhavesh,
Nice thought about trust. yes this company enjoys trust and have built it painstakingly over long periods of time.
Dear yogesh,
Trust is really an asset that has to built over long time and can't be won over by marketing budgets. Like the builder you very well described.
Keep them coming.

Rahul Paliwal said...

Nice point Yogesh. Yes offcourse trust play vital role every where in daily activities. And trust does not mean "premium" it could mean mass business too.
I do not believe in paying huge price to builders though I am planning to buy a flat in Pune since last 4 years. I firmly believe that it is black money which is driving price UP. I have trust on Nation's system though we need to push/support it by Lokpal etc, that one day black money will comeout and price would be realistic.
how many people can affort home now?
On trust topic, people like me who thinks in this way, when one day a I got a news that PNG in Pune is launching a real estate project, I immediately decided that I would book a flat there. Unfortunately it was booked before pre-launch itself.

This is trust..

What do you say?
Hey I would love to listen your comment about real estate correction...
Keep posting nice articles.

The Happionaire™ Blog said...

Very true - trust doesn't always mean premium pricing. It can also mean attaining a mass in terms of customers, clients or followers. Brand value, is more than just trust, it goes on to areas such as image, perception, positioning. So Apple for instance is considered a 'cool' brand - it has crafted this image with smart advertising, packaging, design, etc. But the developer, I am speaking about doesn't really have a 'brand' but his USP is 'trust' and 'honesty'.

Yogesh Chabria

Naresh Pisharody said...

Nicely summarized Yogesh, difference between trust 7 brand