AWM Insights Financial and Investment News

Join hosts Justin Dyer and Mena Hanna as they unpack a common investing misconception: the idea that loving a product means it’s a great investment. Using real-world examples like Rivian, Peloton, and GoPro, they illustrate why strong business fundamentals matter far more than popularity or hype. The conversation provides practical questions every would-be investor should ask and reveals why even boring businesses can outshine the flashiest brands. If you’ve ever been tempted to invest in a company just because you’re a fan, this episode is your playbook for making smarter decisions.

Chapters
(00:00) The Myth of Good Products as Good Investments
(02:00) Business Models and Competitive Dynamics
(05:00) Private Investments and Direct Involvement
(06:00) Assessing Profitability and Market Demand
(08:00) Competitive Advantage and Market Moats
(10:00) The Importance of Liking the Product Versus Business Fundamentals
(13:00) Boring Businesses Can Be Top Investments
(14:00) The Product as the Tip of the Iceberg

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Creators and Guests

Host
Justin Dyer
Chief Investment Officer and Chief Operating Officer at AWM Capital
Host
Mena Hanna
Senior Investment Analyst at AWM Capital

What is AWM Insights Financial and Investment News?

A bite sized discussion on timely financial news and investment topics, to help you maximize your net worth and wealth for the next generation with Justin Dyer and Mena Hanna of AWM Capital.

Mena Hanna: Rivian is a good example.

Rivian makes phenomenal
cars, in my opinion.

Rivian

Justin Dyer: IPO'd

Mena Hanna: five years ago,
and everyone was like, "This

company makes amazing cars.

The cars are awesome.

I need to invest in the stock."

Well, what you didn't know is Rivian
makes cars that are so good that they

lose tens of thousands of dollars on
every single Rivian that they made.

The promise was also always, "Oh,
well, we'll make a cheaper version."

It took them now five years.

They're just coming out
with the cheaper version.

So, they spent five years selling
something that lost money.

It was a great product, but that's
not what a business is made for.

Justin Dyer: Hey, everyone.

Welcome back to another
episode of AWM Insights.

It's your host, Justin Dyer, Chief
Investment Officer here at AWM,

joined as always by Mina Hanna,
a portfolio manager here at AWM.

And

Mena Hanna: And

Justin Dyer: today, we're gonna u-
take a step back from current events.

Um, I know we've, we've kind of g-gone,
um, to a variety of topics, not just

current event focus over the last
few episodes, and, and simply talk

about the idea of, does a good product
automatically make a good investment?

I mean, the, the simple punchline
is no, it doesn't, um, automatically

warrant a, a good investment.

And reason why we're talking about
this is it comes up a decent amount.

"Hey, look at this product.

I love it.

Should I, you know, I want to invest."

Or, um, "Hey, I'm buying XYZ

Mena Hanna: XYZ

Justin Dyer: car," you know,
you name it, consumer good.

"I should also invest in that company."

And the short answer is like,
whoa, whoa, whoa, whoa, whoa.

Let's think about it.

Just because a product is
well-liked does not mean it's

an automatic good investment.

And there's a number of examples,
both in the public markets and private

markets that we'll, we'll touch on
briefly to, to kind of walk through,

hey, you know, what happened here?

What, what actually, uh, transpired?

And, and hopefully just give you
a little bit more perspective on,

uh, the difference between a good
product and a good investment.

So I guess, Mina, let's just,
let's just jump right into it.

Um, you know, what, uh, what is a…

what is a, what's a good
starting place here?

I mean, it, like I said, it, it, it's
a question I feel like or a comment

that we make quite a bit internally.

Um, and, you know, in a way, like, what's,
what's kind of the, the root cause here?

Is it, is it behavioral?

Like, is it emotional,
kind of hype chasing?

I, I know I'm asking you a
leading question there, but take

Mena Hanna: is it emotional
kind of hype chasing?

I, I know I'm asking a lead
question there, but- Yeah.

I, I think it's actually pretty intuitive.

Like, you would think a good product means
that there, there was thought behind it.

There's someone that created something
that, that works, that should have market

share, should capture market share.

Potentially, even if you compare it
to other things, like it should--

if it's a good product, it should
be consumed and potentially consumed

at a higher clip than it is today.

You know, Rivian is a good example.

Rivian makes phenomenal
cars, in my opinion.

Big car guy.

Rivian makes great cars.

If you were to look at a Rivian,
and, and a lot of people did this.

You know, Rivian

Justin Dyer: IPO'd,

Mena Hanna: what is it now?

Five years ago, and everyone was like,
"This company makes amazing cars.

The cars are awesome.

I need to invest in the stock."

Well, what you didn't know is Rivian
makes cars that are so good that they

lose tens of thousands of dollars on
every single Rivian that, that they made.

The promise was also always, "Oh,
well, we'll make a cheaper version."

It took them now five years.

They're just coming out with the cheaper
version to actually release that.

So they spent five years selling
something that lost money.

It was a great product, but that's
not what a business is, is made for.

I wish, you know, I wish you could get
things way below their actual value

forever, and that was commonality,
but that just leads to bankruptcy.

So there's definitely a dislocation
between what you would intuitively think

a good, you know, brand product offering
actually is and, and what truly a good

business and an investable business

Justin Dyer: Yeah.

And I, I, I think it's super helpful,
and we can go down the business

model topic a little bit here, where
it's both the business model, and

maybe I'll extend that even to the
competitive environment that exists.

So in the world of venture capital,
there's this infamous, uh, battle between

Uber and Lyft amongst VCs, where it
was-- They understood the dynamics of

that market, and there was so much money
thrown at those companies in particular,

but even broad, more broadly to rideshare
apps that we don't even know about today.

There was one called Sidecar.

I u- I tried it.

You know, that's probably aging myself.

There's so many of, of our listeners
and, and the team behind us never

even heard about that 'cause it was
just this cutthroat competition.

And so, yeah, great product, but the,
the way the, the competitive dynamics

worked within that, in, in that, in
that space was such that there could…

There were only two winners, and
a lot of people lost capital.

And so there, there's
competitive, competitive dynamics.

There's business model, um, structure.

To your point, Rivian's a great example.

Hey, guess what?

They thought it was gonna be a lot
easier to build a cheaper vehicle.

It's not.

And so from an investment
perspective, that is, that-that's

been an unfortunate outcome.

Where that goes from here, well,
you know, that's for a later day.

Uh, another great one relevant to,
to the present moment is Peloton.

All of our listeners
probably know about Peloton.

Peloton just turned its first profit,
and I think when it went public at

a n- at a, at a level far beyond or
far higher than where it is today.

And so Phenomenal product, cultural--
culturally influential product that so

many of us have in our house-houses,
yet from an investment perspective,

i-it's gonna take a lot, especially for
those early investors to ever recoup

really what their losses are on paper.

Um, I, I think one thing I wanna,
I wanna talk about here is let's c-

almost go through like the matrix,
uh, uh, a two by two matrix of how

people should think about, you know…

L- and we'll stick kind of-- or
we'll transition maybe rather

to the private side of things.

Hey, if you're looking at making
a direct investment in the private

markets, big asterisk there.

That's insanely risky.

Uh, so we're using this as
a, as a thought experiment.

But, um, you know, in many
of our listeners' cases,

they're prominent figures.

They have plenty of, uh, social media
followers, et cetera, and there's

value inherent in, in potentially
getting involved in, in a company,

usually on the consumer side of things.

How would we think about
that whole equation?

Mena Hanna: Yeah.

Um, I actually knew you were
gonna ask me this question.

We didn't prepare for this
one, but I have it down.

So how much does it cost to make
one and what can I sell it for?

I think those are, those are two
important questions just off the gate

because that helps you conceptualize
what the profit margin is.

Obviously, if it's a Rivian and the
profit margin is, is negative, then

you're really hoping for an evolution
of the company and evolution potentially

in technology to kinda make that
formula make sense because that one

doesn't, at least, at least for now.

The second one is like, who is
going to buy the second one?

Who's behind me in line?

The tough part with that
one, and, and sometimes the

answer is, is no one needs to.

Like some of these products, if
they're super niche, if you only

need very limited sales, you can
think about like high-end cars.

Like maybe you are selling 10, 15,
20 a year, and there doesn't have

to be a room full of consumers.

But for the most part, you have
to think about what the next

future sale actually looks like.

That was sort of Peloton's issue.

Peloton Made a ton of money on
the hardware when people were…

And I guess they-- this was their
first quarter, but they had a

lot of consumption during COVID
and a lot of people buying them.

And from COVID on, uh, their stock
price is down ninety-five percent.

It's, it's pretty crazy.

There's just-- there wasn't that
demand durability, um, and there,

there wasn't a large pool of consumers.

So you're effectively just stuck with
your subscription revenue and, and

that's not a good business model.

The last thing I would say is
like, what is stopping someone

from competing with you?

GoPro is a good example of this.

Like GoPro was an industry leader.

Everyone had a GoPro when I was growing
up, and it was sort of this hot commodity.

Uh, well, you had a ton of new entrants.

You had people in China making
GoPros for substantially less,

and there was sort of no, no moat.

There was no…

Yeah, GoPro, since their IPO,
is down ninety-eight percent,

uh, in twenty fourteen.

So you have, you have a
whole host of, of questions.

I would say there's some quantitative
questions just on, on profit margins.

There's consumption questions based
on, you know, who you're buying pool--

who your buyer pool actually is.

And then there's, there's competitive
advantage questions, which in

the example of GoPro, those
things can shift pretty quickly.

Um, and if there isn't kind of a
technological advan-advantage that you

have or potentially like a marketing
advantage, then someone else is gonna

come in and, and steal market share.

Justin Dyer: Yeah, totally.

I mean, on the GoPro topic, uh, just
this year, the, the founder had to

personally lend the company $20 million
just to keep, keep the thing afloat.

So- It's insane.

Yeah … uh, yeah, wild, wild,
um, turn of events there.

Uh, going to…

Let, let-- I'll just ask
a, a pointed question.

Um, for people investing in a direct
company or getting equity for service, is

it important to actually like the product?

Mena Hanna: I, yeah, you have to.

Um, if you don't, if you're backing
something that you don't believe

in, I think there's a whole host
of, of other risk factors that you,

uh, that you expose yourself to.

But I feel like you have to.

You have to like the product.

You're-- You have to be tied to it.

You're tying your name to
it, so, so you have to.

But, uh, that is only one consideration.

The business component is, is the second
consideration, and there are potentially

structures or, or possibilities
where all of the three things that

we talked about could potentially
align and you still get yourself

in, in a bad business, a bad stock.

I think Porsche is a
great example of that.

They have, they have a mo-
They have a great product.

They make money.

Um, they have a consumer pool.

I feel like everyone wants one, or maybe
that's because I'm in the car world.

But at the end of the day, they made
some business mistakes leaning a

little too far into the electrical
car side, and their stock price is

down 50% in the last four years.

So, um, you can have all of the above.

You can have a good product.

You can potentially like the product,
and if the business is not set up in the

right way to capture future consumers at,
at a healthy margin, healthy clip, you're

setting yourself up for, for failure.

So, uh, I definitely think you
need to like the product, but you

also need to like the way that the
business is st- set up, who's actually

potentially running it, who's making
decisions, the future trajectory of it.

Um, looking at the product
alone is, is just too

Justin Dyer: Yeah, 100%.

I'd just add to it as well.

Yes, you need to like the product.

You need to like the people running
it, but you also need to be very real

on the size of the market, right?

Just because it's something you like
doesn't mean it's something millions

of other people are gonna be, uh,
a huge fan of, and is that what the

company's actually trying to do?

Oftentimes we see startups where cool
product, the assumptions in what the

product is going to do is insane, right?

It's like, "Oh, we're gonna take over
the world essentially," and it just,

it just doesn't happen very often.

The other thing you have to just, just
s- kinda square, square the, the circle

here around is understand, especially
in the world of startups, that as cool

as the product may be, and this is kind
of in line with what we've talked about

here, the vast majority of startups go,
go to zero, go bankrupt, go belly up.

And that could be, "Hey, cool idea,"
but it's really fricking hard to

turn that idea into a product.

Or, "Hey, cool product."

It's actually really hard to
scale that product and manufacture

it in a profitable way.

I mean, you could throw
Rivian in, into that mix now.

Who knows where, where th-
they'll, they'll go from here.

But there's a lot of private examples
in that, in that situation where awesome

product, insanely expensive to, to build,
and there's all these assumptions that,

"Oh, hey, the cost to build is gonna
plummet over time, and we're gonna still

be able to sell this for the same amount
to hundreds of thousands of people."

Those are all kind of real high
level gut checks that, that we

certainly look at when we're helping
clients assess, uh, opportunities.

Um, and it's just really important, right?

There's so many variables.

It's important to understand there's
so many variables when it goes into

determining an investment decision.

And then even on the flip side,
really boring companies Can make

phenomenal investments as well.

Like, it, it doesn't-- these
things are not strongly correlated

in, in one way, shape, or form.

I mean, Warren Buffett is, is, has built
a, you know, just a legendary career.

He built a, a legendary career, uh,
along those lines, like investing in

insurance businesses, which are some of
the most in- boring businesses out there.

See's Candy is another famous
one that he, he invested in.

Maybe someone has a sweet tooth and
really, really likes them, but, right,

the, th- these boring businesses that
just have a great capital structure and,

and print money, if you will, because
there's, there's a simple con- repeatable,

uh, set of customers out there that love
the product, that will pay the, pay the

price that, that the company is setting
and, you know, you just clip your profits.

Uh, it-- and it becomes a really,
really, really great thing.

And I would argue in a way that we
invest in the pub- public market,

certainly from a value perspective,
that's kind of inherently, uh, uh,

embedded in that general strategy,
looking for good companies that are

selling at a cheap price, right?

Like that, that is, that's a win-win type

Mena Hanna: situation.

Yeah.

And, and really going back to the product
side Then tying this all together, like

a product is the tip of the iceberg.

What actually has value and what
materially makes something sound

or makes an iceberg an iceberg
is everything that you don't see.

So yeah, only looking at the product
side, making an investment decision

based off of the tip of the iceberg
is usually a failing strategy.

Justin Dyer: Yeah.

I mean, that's a perfect place to end.

I would just underscore that, hey, don't
get caught up in, "I like this product,

therefore it's a great investment."

Could be the case, but there's a lot more.

Like Mina just said, it, it really
is just the tip of the iceberg.

And if it's something you're
getting involved in, whether it's

from an endorsement perspective
or, or otherwise, right?

It is really important for you to
be passionate and actually like

that product so that, that, um, the
authenticity i-is present and, and,

uh, really conveys value there.

So anyway, we'll, we'll leave it there.

Hopefully, this was helpful.

Um, it's a, it's a great
topic for us to talk about.

But if you guys have any questions,
definitely, uh, throw them our way.

We always like talking about
things that are relevant, as

Mena Hanna: you know.

Yeah, six two six-eight six
two-zero three five five.

Justin Dyer: Awesome.

And until next time, own your wealth,
make an impact, and always be a pro