Warren Wednesday 4/12
In the 1983 Berkshire Hathaway shareholder letter, Warren Buffett wrote:
“See’s [Candies] strengths are many and important. In our primary marketing area, the West, our candy is preferred by an enormous margin to that of any competitor.”
Investing in stuff that people LOVE is a great strategy not just for traditional investments, but also for web3.
Products that evoke responses of passion and evangelism will offer the best chance of creating sustainable business models likely to withstand market volatility and create long-term prosperity.
In the early 1970s, a $25 million investment in the fledgling See’s Candies company gave Berkshire exposure to a widely beloved product: chocolate.
This investment netted Buffett over $2 billion in pretax income as of 2019; a whopping 8,000% gain.
There are two competitive advantages of selling something with strong brand loyalty:
1. End users make purchases in good times and bad.
Candy brands (like See’s), alcohol (think Boston Beer) and basic needs like toothpaste from Proctor & Gamble are all great examples of good purchases regardless of market sentiment.
2. Management can raise prices over time.
Starbucks is a KILLER example of this in practice. In 2022, they INCREASED the price for brewed coffee 20.41% to $2.95 for a grande while growing gross profit 7.93% over 2021.
But because America runs on Starbucks, no one seemed to notice or care and overall sales GREW 12%! Great news if you own their stock.
The bonus advantage here is that 99% of the time, the company never has to lower their prices. So as inflation wanes, real prices have gone up (along with profit margins!).
As web3 projects work to bring new products and services to stakeholders, investors should buy what people love.
I took an alliterative approach here to make things easy to remember. Here are the 3 Cs of what people love in web3:
Gaming is set to be a HUGE part of Web3. 100M+ gamers are expected to onboard in the next 2 years, and about 40% of the games being built will go live in the next 12 to 18 months.
In a world of uncertainty we can be sure of one thing. People LOVE competing with each other in virtual settings and projects focused on this niche should be on your radar.
If I learned anything from being a 90’s kid is that people LOVE collecting things. Even if they are star studded baseball cards from the steroid era.
In 2021, the market for collectibles was estimated at $402 billion and expected to cross $1 trillion by 2032. And the fastest growing segment of collectibles is…you guessed it…DIGITAL NFTs growing at a compounded rate of ~20% per year.
Companies focused on making people COLLECTORS are going to do well.
Web3 offers an amazing new opportunity for brands to cultivate what I call “micro-communities.” NFTs in general, when done the right way, foster strong community adoption and this translates into stronger floor prices and longevity. Things like 10kTF, or CloneX with Nike, Gucci and Otherside are ways that brands are getting into the game.
Don’t fade these players. Soon enough you’ll be wearing clothes from well known brands at the club and in the metaverse.
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We took over 1,000 pages of wisdom from the Oracle of Omaha and condensed it into a snackable, easy-to-read investment guide to help you on your journey to grow wealth in the web3 space!