Investing Lessons From a Food Diva's Downfall

AMA6-30-13Love her or hate her, it seems you can’t escape her. Celebrity chef Paula Deen keeps on making headlines as she’s dropped by sponsor after sponsor and products bearing her name are yanked from store shelves. Her fall from grace for making racist remarks isn’t just a topic for the tabloids, though. The collapse of Deen’s empire has serious consequences for the retail economy and investors large and small

The disgraced food diva’s alleged use of racial slurs sent major corporations such as Target, JC Penney and Wal-Mart into full damage control mode. Target pulled products bearing Deen’s endorsement and all her sponsors reworked ad campaigns and publicity materials. Major publisher Ballantine Books bailed on Deen’s upcoming book, already number one on Amazon in pre-sales. Investors, too, are backing off from any enterprises that Deen is associated with..

So what went wrong for Target, Wal-Mart and company in this situation and what’s the takeaway for income property investors? DEen’s sponsors banked big –and exclusively — on her popularity. They named products lines for her, featured her in their advertising, used her name and likeness to promote everything from books to silverware. But when her public persona went wrong, these companies lost billions. Putting massive resources behind a single personality created a house of cards that collapsed in the blink of an n-word.

And for investors? Just like Deen’s sponsors, who poured massive amounts of advertising dollars into a single celebrity spokesperson, an investor who pours all available resources into one market risks losing big if the market collapses.

Jason Hartman sums it up in his 10 Commandments of Successful Investing. “Thou shalt diversify,” says Commandment 6. Investing in several different markets with different features not only reduces risk, but also maximizes returns. An investor who puts all resources into a single market that then collapses can face major losses.

Along with that, Jason’s 7th Commandment advises investors, “Thou shalt be an Area Agnostic,” and choose to work with advisors without any bias toward a particular area or type of investment. This avoids a conflict of interest and opens the door to more opportunities for investing profits.

Paula Deen’s future is unclear, and it’s anyone’s guess whether she’s learned any lessons from the loss of her reputation. But for the companies who lost millions in revenue and time spent repairing damage done to images and brands, the message is clear. All eggs can be broken when a single basket falls.

Sources:

Beyers. Tim. “Paula Deen’s Biggest Failure: Not Heeding Warren Buffett’s Advice.” The Motley Fool. 30 Jun 2013

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