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Self-fulfilling brands?


ItsAValueTrap
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Outside of business, universities would be a perfect example of a self-fulfilling brand.  Harvard University is generally considered to be one of the top universities in the world.  It attracts many of the best students, teaching staff, and researchers.  It has a very large endowment and even attracts some of the best endowment management talent.  It seems to me that Harvard's brand is largely self-fulfilling.  Employers rate Harvard students higher than students from other school.  Even if the student's grades aren't that good, getting into Harvard is an achievement onto itself.  And students want to get into Harvard because it's hard to get into (human beings have a heuristic where they assume that something is better if it's hard to get), because employers value the brand, and because the school has many top professors.  I assume that top professors prefer to teach at Harvard because usually professors want to teach the best and the brightest.  For non-profit universities, the skill of the president/"CEO" doesn't seem to matter that much.  It's mostly the brand that matters.

 

In the business world, it seems that there are some industries that are dominated by self-fulfilling brands.  I don't understand advertising agencies that well but it seems like the reason why market shares rarely change in that field is because the brands are self-fulfilling to some degree.  I assume that top employees prefer to work for the most prestigious agencies.  The best clients tend to gravitate to the biggest name ad agencies because those agencies attract the top employees.  Buffett owned a few different ad agency stocks and did very well with them.

 

Investment banks also seem to have self-fulfilling brands.  I would never buy an IPO, but if I did... I would rather buy something from Goldman Sachs than say Citigroup or Morgan Stanley, and Citi/MS over Rodman and Renshaw.  And I think that the people who want to work for investment banks would rather work for Goldman over Citi/MS, and the large investment banks over the smaller ones.  The companies doing IPOs prefer the prestige of big name investment banks and listing onto "credible" exchanges (e.g. all the Canadian juniors want to be on the TSX, not the TSX Venture; they want to be listed on the NYSE rather than pink sheets or OTC).

 

On the other hand, the investment banking business is more complicated that simply saying that brand is the only thing that matters.  Management matters... bad management killed off some of the major banks and the others had to be bailed out.  In the brokerage and clearing and market making business, scale may matter.  When you get to look at most of the order flow out there, it's an informational advantage.  (Technically the investment banks aren't supposed to do that but...)

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  I assume that top professors prefer to teach at Harvard because usually professors want to teach the best and the brightest.

 

As at all research universities, I would change the professors' motivation to

 

I assume that top professors prefer to do research at Harvard because they want the best and brightest graduate students.

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