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Old rules no longer apply

Kraft Heinz became the deal where Warrent Buffet’s old rules for investment came unstuck.

The FT reported on Monday this week:

Kraft Heinz shares dived nearly 30 per cent on Friday after it took a $15bn writedown, cut its dividend payout and disclosed it was the subject of a probe by the Securities and Exchange Commission into its accounting policies.

Buffet is the Western world’s most admired investor. He is admired because of the largely unbroken success of his company Berkshire Hathaway; success founded on the disciplined application of his rules, the most important being to only bet on incumbent brands that have a “moat”, meaning that they were able to defend and grow their market position and to hold shares for a long time. He steered clear of innovators and tech firms – eventually buying Apple once it has clearly shed its disruptor status and established itself as an apparently immovable giant in the music and smartphone markets.

The success of his approach undermined the claims of gospel of The Innovator’s Dilemma. Some things did never change, the predictable Buffet wins said, you can’t go wrong with big brands that people love. And that was true, as they say, until it wasn’t.

Where CPG incumbents go, advertising holding groups follow

In the CB Insights newsletter the collapse of the Kraft Heinz share price was cited as an example of digital disruption’s effect of “gradually, then suddenly” downfalls of incumbents.

The FT’s John Gapper commented, “advertising  flavoured with history is no longer enough”, an analysis that can be applied to the big advertising holding groups as well.

The old rules no longer apply. Our mission is to write the new ones.