Mental Model: What the Fall of Dividend Mantra can Teach You About Your Circle of Competence

Mental Model What the Fall of Dividend Mantra can Teach You About your Circle of CompetenceThis 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:

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19 thoughts on “Mental Model: What the Fall of Dividend Mantra can Teach You About Your Circle of Competence

  1. Jason is on Facebook answering a decent amount of questions. He was always personable and answered every single email and question on DM. But that website is toast without him.

    1. I’ve read enough history to get queasy feelings when people start getting surrounded by Yes Men. You can’t imagine how quickly things implode once you surround yourself with – to put it crudely – a kumbaya circle jerk inside an echo chamber. Bad things happen when you let that become a part of your life. DM was on one those blogs where the comment section felt like some weird cult of overt optimism, everyone gets high fives, and nothing is critically discussed. I get why that was popular with a lot of folk because it created a sort of “safe space” where everyone felt supported. But that can get dangerous.

      One thing that kind of surprised me when I met Jason in real life was that he wasn’t exactly the bubbly, super-positive-all-the-time, everyone high fives kind of guy his online persona seemed to portray. One of the other bloggers that was at that meetup also concurred that he had a very different view of what Jason was going to be like in real life based on his online persona.

      It’s not that he wasn’t a nice guy, because he was. But he was more intense, serious, and calculating. To be brutally honest – and I kind of have this too, which probably I should work on – he seemed to also have a bit of a chip on his shoulder. Again, it’s not that these are bad things. He was a really nice guy when we met and I have nothing bad to say about him. It was just… surprising that I had expected someone based on what I only knew of him online and actually meeting him in the flesh. It was… interesting. People are interesting.

      Anyways, while all the past articles and posts Jason created on DM is still valuable, there is literally going to be no more skyrocketing growth for the website without him. I imagine the best these guys can do is hope that the old content draws a steady stream of search engine results, and provide guest posts from other finance bloggers who are willing to write decent posts for free for the link back to their blog. Maybe they can saturate DM with ads, affiliate links, and sponsored posts and hope that this can draw a steady but falling revenue stream and make back some of the money they sank into purchasing the property.

      I imagine this will go down as an expensive lesson to learn for them.

      1. Steve,

        You’re right about the “kumbaya circle jerk” as you like to call it. First it felt really good to be part of such a supportive group, but after a while I felt like we were missing in depth discussions in the comments section. I wrote something similar to what you describe in one of my latest posts on KMI: following a herd of sheep.

        Now, I don’t mean this in a bad way – especially not purposely bad – but we should be careful not to become a bunch of sheep doing the same thing because you’ll ultimately lose sight of red flags and critical indicators.

        Great article, by the way!

        Cheers and all the best for 2016,

        1. Thanks for dropping by – it’s nice hearing from ya!

          I try to limit myself on how much time I spend in one sitting on websites, comment sections, or forums where investments are being discussed. It’s seductively easy to get lax on critical thinking when others are chiming in. To read then step away and think independently is a skill I’m constantly trying to enforce.

          The brain is funny when it comes to herd behaviour: I imagine it’s just the brain’s way of expending less energy by taking shortcuts, probably an evolutionary trait that was handy for survival. But not so handy when it comes to tasks that require immense attention to detail and critical thought.

          Hope you have lots lined up for 2016 as I’ve always enjoyed your analysis and insights (was always eager to read beyond just monthly income reports for the past few months)!

      2. most of what you say is true…sooner or later a cult leader will prove to be mortal….the touchdown can then be unpleasant…to ditch your followers for lousy 50k

        does make you have some qualms about the guy…

        i found the dividend growth guy far more circumspect and real

        1. If you’re talking about Dividend Growth Investor, I agree that he is a solid blogger who is focused on his craft and has been writing his blog consistently for almost a decade. You won’t see him handing out high fives to everyone that crosses his path, which I respect.

        2. lol at the “lousy 50k” part. The guy’s net worth was like $150-$200k last I checked. $50k is a serious amount of money to him (or really, almost anybody).

          1. Nelson has a point that it would be incredibly tempting to cash in on a lump sum payday that equals anywhere between 25% to 33% of your total net worth.

            And really, money is what makes the world go round…

          2. you are right off course ..i ts relative…but honestly how much of

            freedom is ,say 75k gonna buy you..? 2 maybe 3 years…?

            and then ? you already slaughtered your cash cow and your

            name….was it worth it ?

            i had an elderly friend who took extreme risks all his life

            buying the most risky stocks and consequently living on edge of bankruptcy most of his life ..after 20 years i lost track of him..

            now i heard from a mutual friend that the guy finally made

            70 million in the last 10 yrs…you know what ? he donated

            most of that money to a couple of universities and continues

            to live a humble life. he doesnt even have a car !!!

            not once did he preach ” holier than thou attitude”

            and then i hear of a guy selling out for 50-75k some thing

            he claimed he believed in….

            so i am sure there are a ” few good men ” out there,,.but they rarely fly a banner

          3. In general, I agree with you voidist that, if it were me, I would have kept the site and constantly updated and refined it. I’d rather hold onto a cash producing asset unless someone is going to pay me an outrageous premium on it.

            And yes, conducting one’s affairs with integrity is a highly admirable trait that is rare to find, especially online.

  2. I enjoyed this post and I’ve certainly watched the “demise” of Dividend Mantra with interest. Hot damn, those are some angry commenters.

    But at the same time, I just don’t agree with your assessment that DM is basically toast. Now it might be toast with the guys in charge currently, but it’s easily salvageable for anyone with any knowledge of investing blogging. If I was in charge, I’d:

    1. Bring back Jason (a no-brainer, but has to be said).
    2. Even if I succeeded with #1, I’d still bring on 2-3 staff writers to write a post a week. Get people used to other voices besides Jason’s.
    3. Moderate the hell out of comments. The nice thing about being in charge is you can create your own message. Certain PF blogs do this quite well.
    4. Get DM’s posts syndicating again on Seeking Alpha, Gurufocus, and wherever else they’d have me.
    5. SEO optimize the archives, assuming Jason didn’t do it already.

    Regular readers think they’re a bigger part of a blog’s success than what they really are. Sure, every eyeball helps, but the guy who already has a brokerage account and doesn’t buy anything isn’t contributing anything to the bottom line. It’s the guy who opens up a Scottrade account because Jason (or whoever) says it’s a good idea that’s the ideal customer. It isn’t guys like me.

    1. Perhaps it’s a deep value turnaround potential asset for someone who could perhaps get the current owners – who are fumbling the shit out of this – to sell to them at a discount. I don’t disagree that it could potentially turnaround into an ok asset/property, I just think it’s more than likely toast with the current owners and what they’ve seemed to have done to it and if they don’t turn it around soon (as evidenced by the 600+ angry comments).

      It’s like… when Coca Cola brought out New Coke. If Coca Cola continued fumbling on with New Coke, it would have been a fiasco and gong show. Thank god they shelved New Coke and brought back Classic Coke. The anger and ire they drew from New Coke was insane.

      The anger and ire the new owners are drawing from their audience reminds me of that.

      I mean, there’s just so much more profit potential with either Jason in the picture. Yes regular readers don’t click on ads or affiliate links, but you can sell them even higher value items like courses and ebooks. Hell, the margin on those are pretty incredible once you start rolling with the sales. You can have the ad and affiliate clicks for search engine folks and courses and ebooks for the “loyal” readership.

      I suppose if these new owners correct the course, they can stabilize the site, and milk all the past content for ads and affiliates. That’s ok but I just can’t imagine all the potential revenue/profit they have pissed away by pissing off the regular readers.

      I would imagine if they did a back of the envelope discounted cash flow analysis based on their current reality (vs. what they projected going in), they have a big hole to climb out of because they probably overpaid for the website based on what’s currently going on.

      Oh, and I have to thank you for your post a few weeks back that mentioned the whole DM fiasco as I hadn’t dropped into DM in awhile, and wasn’t aware of what was going on, until I read your mention of it.

    2. I would never take that website seriously after this… he really is toast to me…..there are plenty of other genuine articles around like Dividend growth…..

  3. I must have been living under a rock – I had no idea he sold his site. I popped over there for a quick look and it does look……different. No clue on valuing websites so can’t say whether they over pair or under paid, but selling it all for $50K? Is it really worth it? The guy did a fantastic job of detailing his investment choices for a long time and wrote like 700+ posts. Seems like it should be worth more than $50K

    1. Ya I really have no idea what websites normally go for, so unless someone else chimes in who has experience/knowledge with it, I’ll go with what the RtR blogger detailed. But yes, it seems rather a low price to cash out at. He seemed to have something special going with his, and with a little more work and more traffic growth, I could see it being worth potentially in the six figures in a sell out.

      1. you would think that for someone who allegedly had boundless passion to sell out for a lousy 50 or even 75k . seems to me a pretty mercenary attitude

        1. Ya that’s what makes it such an interesting and strange case. I’m almost certain DM could have been built up and sold for a lot more money than $50k (of course, we are just speculating that it was in this amount as we have no idea precisely what Jason sold it for).

          Never underestimate the power of money – it’s what drives this world.

  4. Interesting article except the stupid remark about Trump,maybe you support Bernie so we can all share our dividends?

    I don’t believe for a second Jason sold out for a measly $50,000, its was more like $1,050,000.
    I also believe he will be back after his agreed upon ‘no compete clause’ is up, normally 1-3 years.
    Between his book and blog he is doing financially well. He is just resting and will be back bigger and better before you know it.

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