This is old hat for many of you, but it is an extremely important model to conform to: know thy circle of competence and stay within it at all times. It’s seductively easy to stray out of our circle of competence. People spout on about things they have little to zero knowledge of all day, every day. Go check out the bowels of Reddit if you need confirmation. The harm is minimal when you’re bullshitting with your friends, although you may be labelled a douche if your ignorance is ever caught. But the harm can be tremendous when it comes to your hard earned money. Look at all the people who got burned recently with Kinder Morgan. How many were piling in because they understood the intricacies of the risk/reward payout of pipelines, master limited partnerships, and the energy sector? Or were many getting lured by the promises of management and a history of rising dividend payouts? Hindsight is hindsight, but if one really understood Kinder Morgan and the business environment it operated in, there potentially could have been red flags that were raised as you studied the company in depth. But I’m not here to talk about Kinder Morgan today. Let’s speculate on the fall of Dividend Mantra.
I had the pleasure of meeting Jason Fieber, the former owner and writer of Dividend Mantra, back in May at the Berkshire Hathaway shareholder’s meeting, along with the owners of 1500 Days and Planting Our Pennies. It was a little personal finance blogger meetup in the shadow of the biggest event of the year in Omaha. All were extremely pleasant and nice people. Jason was a level-headed, intense, and nice guy.
Recently, Jason sold his blog. There are no official details on how much he sold it for, but some people speculate it was for around $50,000. It could have been more, it probably wasn’t less.
But the point of this isn’t about Jason Fieber: it is about the people who bought Dividend Mantra.
From a purely metrics point of view, Dividend Mantra seemed like a high value online property that had yet to be fully exploited for maximum cash generation:
- It had 100,000s of page views per month
- It had a very loyal following of readers
- It had an active community
- It had minimal ads
- It had minimal affiliate ads
- It had no sponsored posts
If you bought the property and cranked up the amount of ads, affiliate links, and sponsored posts, you could generate a lot of revenue that had yet to be fully exploited. It is vaguely akin to what 3G Capital does to its acquired businesses: it slashes expenses and more efficiently generates every dollar. That is what they did with Anheuser Busch Inbev and that is what they are currently doing with Kraft Heinz.
The biggest difference though is that 3G Capital bought the business and retained the all important things that generated all the profit for the businesses: the brands. They retained iconic brands such as Budweiser, Coors Light, Heinz Ketchup, and Philadelphia Cream Cheese when they bought Anheuser Busch Inbev and Kraft Heinz. How stupid would it have been if they didn’t get these brands along with the factories and offices?
Well… that is essentially what occurred when the new owners of Dividend Mantra bought the website but did not retain the most important aspect of the blog: the brand. And the brand, honestly, was all Jason Fieber.
Read through all 600 plus comments here. What’s the theme that emerges? It’s that people read Dividend Mantra for Jason. Dividend Mantra generated hundreds of thousands of page views, loyal readers, and an active community because people liked Jason and his story. Without Jason and his story, the page views, loyal readers, and active community disappear.
For the buyers of Dividend Mantra, all those attractive metrics… they were a mirage without Jason continuing to be an active part of the website. I honestly don’t know how these guys didn’t see that the secret sauce to what made those metrics so attractive was Jason himself. Without him, you don’t get those metrics and all of a sudden, the website is worth far less.
I’m purely speculating, but from the gong show that seems to have occurred, the guys who bought Dividend Mantra overpaid because they did not value the website without Jason correctly. They probably thought they were getting a growing and attractive stream of page views, coupled with an active and loyal community, that had yet to be fully exploited for profit generation. They probably figured that they could make their initial ~$50,000 back and then milk a perpetual stream of advertising and affiliate revenue.
But that’s not how this is turning out. Readers are revolting. Page views are plummeting. All that potential and promise is slowly disappearing.
The guys who bought Dividend Mantra did not know their circle of competence. They did not know that Jason was the engine that kept the place turning. They got fooled into a value trap.
It’s like buying out Nike, not being aware that the value of Nike is in the brands, and not getting the trademarks and brand names in the purchase. If you’re not getting the trademarks and brands, you need to severely discount the value of what you are getting as it is worth no where close to what the swoosh, Air Jordan, and plethora of other trademarks are worth.
In life and investing, it is paramount to know your circle of competence. Lest you end up like the fools who bought Dividend Mantra.
*As of January 2016, the post with 600 plus comments has been deleted off Dividend Mantra. You may be able to find it by searching through the internet’s archives, but links will just take you to an error page now.
*If you want to read into the rumours and gossip surrounding Dividend Mantra, you can get your fix at these spots:
- MMM Forum Thread on Dividend Mantra
- Bogleheads Forum Thread on Dividend Mantra
- Blogger breaking down the situation
- The Last Post on Dividend Mantra