Monday, August 10, 2009

Affinity Shareholders

I have never heard the term before so maybe (hopefully) I'm coining it. The concept has been floating around in my head for some time. One of those nagging ideas with fuzzy edges. Today, the term "affinity shareholder" came mind and sharpened my thinking.

Initially I wondered if it was something stuck far back in my memory that I unwittingly stole from some forgotten book or article. Several Internet searches later, I'm feeling better.

Here's my working definition: Investors who own shares in a company primarily because of a personal connection with that company and/or its products. This is not necessarily an employee owning stock in his or her employer because of corporate pride.

Instead, this is the "I ride a Harley, therefore I own HOG shares." or "I drink Budweiser, therefore I (used to) own BUD" shareholder. To be clear, the shareholder's decision is primarily driven by something other than valuation. or other investment considerations.

We all know companies that fall in this category because of their products: Coca-Cola (KO), Disney (DIS), maybe Starbucks (SBUX)

Krispy Kreme was one such company and its valuation was driven to astronomical levels. Crocs (CROX) comes to mind as well. And this is the real issue.

What affect do affinity shareholders have on valuation? What percentage of ownership in certain companies can be attributed to affinity shareholders? Secondarily, what factors drive affinity? We've all heard about home country bias, but what other biases do we suffer from?

I'm not seeking to answer these questions in this post. Just food for investor thought.

If you can think of other categories, individual companies, or improvements to my definition, please reply.

Random thoughts this Monday morning!

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