When analyzing companies, considering the strength of their brands is part of the process.
But you should never judge a business or stock based solely on its reputation and coolness factor, cautions Mark Lin, vice president and portfolio manager at CIBC Asset Management.
Read: Brands matter when choosing stocks
In the tech space, he adds, you can’t “rely on [the] coolness factor to predict cash earnings a year and three years from now,” especially since the sector is so dynamic. “You never know when [branding] will fade or change, which impacts long-term investment [outlooks].”
Take Apple: despite its status as a top tech company around the world, its reputation has suffered due to a lack of innovation since Steve Jobs passed away, says Lin. The company recently released new software plans and a 7-for-1 stock split, however.
Read: Are we in a tech bubble?
Dips in innovation can be a problem for tech businesses, he notes, since a “company’s earnings [can] actually start to decline if the cool factor is gone.” Still, the loss of revenue is “a much more serious factor, and [investors] want to avoid this kind of situation at all costs.”
Read: Samsung and Apple competing again
So, Lin suggests you help clients also look at the management teams, market positions and growth prospects of all tech businesses they want to invest in, whether it’s a high-profile company or not.
Read: An uncommon approach to stock selection
“Our job is first and foremost to generate return from our investments,” says Lin. “And some of the names out there that are more exciting [are only] exciting from a user perspective. [It] introduces more risk [if] investors” base decisions on whether a company is making headlines.
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