Thursday, August 31, 2006

I want to introduce a very talented man whom I had the opportunity of knowing for the past several years. He is, in my opinion, one of the best Financial Gurus, I have ever known. He is able to take very complex economic and finance issues and write them in a way that anyone can understand.

Mr. John Kim of Smartknowledge UT

Here is his latest and most insightful article.

> Subject: Ezine Issue #015: Does McDonalds Really Sell Burgers and Fries?
> Does McDonalds Really Sell Burgers and Fries?
> What does McDonalds really sell? And what about Nike? I know what
> you're thinking. You're thinking what in the world does understanding McDonalds'
> and
> Nike's marketing strategy have to do with building wealth. As you'll
> discover in this article, understanding this has everything to do with
> how successful you'll be in building wealth.
> So what does McDonalds sell?
> If you guessed hamburgers, fries and milkshakes, guess again.
> Your second guess is probably wrong too. Because I know with today's
> marketing industry obsession with "lifestyle" marketing, most people
> believe that McDonalds sells a feeling of comfort and a
> family-friendly atmosphere. Just look at their Happy Meals, the fact
> that the only fictional character more recognizable than Ronald
> McDonald is Santa Claus, their frequent Disney promotion tie-ins, and
> their "You Deserve a Break Today" jingle. But McDonalds doesn't sell
> comfort either.
> Pure and simple, McDonalds sells real estate. If the quality of the
> food were McDonald's number one concern, then people wouldn't become
> obese from eating their food and you wouldn't be shocked to find out
> what's inside your meat (Just read the book Fast Food Nation if you
> really want to know what's in your Big Mac. If you're too lazy to read
> the book, good news - there is a Hollywood version of the book coming
> soon to a theater near you). In 1968, McDonalds operated just 1,000
> restaurants. Less than 40 years later, it operated over 30,000
> restaurants and opens 2,000 new restaurants every year.
> As I said, McDonalds sells real estate. If you still don't believe me,
> Ray Krok's (the owner of McDonalds) right-hand man and business
> partner, Harry Sonneborn, once stated, "We are in the real estate
> business. The only reason we sell [ ] hamburgers is because they are
> the greatest producer of revenue from which our tenants can pay us
> rent." Of all the major fast food franchises, McDonalds is the only
> one that owns or holds the lease on their restaurants.
> That makes them one of the largest landlords in the United States. And
> the cost to buy one of their franchises? About a cool USD $500,000.
> Actually that's cheap compared to the USD $1,500,000 franchise tag per
> restaurant for their major competitors. But their competitors don't
> own or hold the leases on their restaurants. That's the difference.
> And What about Nike? What do they sell?
> Given that Nike does not own a single sneaker factory or have a single
> person directly involved in manufacturing their sneakers on their
> payroll, it is most definitely not shoes. They outsource every single
> step of the manufacturing process so they can spend the greatest
> percent of their annual budget every year on marketing. Nike's largest
> budget percentage is overwhelmingly allocated every to their designs
> and marketing department. And what do these employees do?
> They manufacture "ideas" and "dreams".
> Before Nike paid Michael Jordan more than enough money that he could
> ever possibly know what to do with, the sneakers every kid wanted on
> their feet when they went back to school were Adidas. Nikes were what
> kids wore when you couldn't afford Adidas. Back then, Run DMC cut a
> track titled "My Adidas", not "My Nikes". Back then, Adidas had the
> respect of the all demographically-important hip-hop community, not
> Nike. When Nike realized that the key to success was to sell not
> shoes, but the concept that wearing Nikes would make you a better
> athlete, make you "cooler", would make you stronger, run longer, run
> faster, give you more endurance, even make you jump higher "just like
> Mike", only then did they started selling more shoes than anyone else.
> In
> fact, before they hired Michael Jordan to promote their ideas, Nike
> was losing so much money that they almost went bankrupt. But few
> people remember those days. In fact, this strategy of selling ideas
> proved so successful that Nike even coined a term for it.
> They call this process "bro-ing" (Source: No Logo, by Naomi Klein, p. 75).
> They
> would take their prototype shoes to the inner-city playgrounds of
> Philly, Chicago, and New York, approach young kids, and say "Hey bro,
> check out the shoes" to build a buzz around them (this stuff is just
> too good to ever make up). Nike shoe designer Aaron Cooper stated that when he went on a "bro-ing"
> expedition in Harlem in New York City, that kids would tell him that
> Nike was the most important thing in their lives. Number two was their
> girlfriend.
> Nike
> determined from that point on, they were going to "bro" people to death.
> Since
> that decision, Nike has long replaced Adidas as the "it" sneaker among
> the "in-crowd". Simply put, Nike is a brilliant marketing company.
> So what do the big global investment firms sell?
> The big investment firms employ some very sharp minds as well. They
> understand that selling a customer a dream and not reality will gather
> more assets.
> That's
> why they don't attempt to sell you great returns even though this is
> undoubtedly one of the very top things that every investor wants. How
> else can you explain why most investment firms always tell you never
> to expect more than 6% to 10% maximum returns a year from your stock
> portfolio? Do those returns sound dreamy to you? If this was their
> major marketing campaign, how many private wealth management clients
> do you think they would have?
> Can you imagine a slogan: "Because we make you 8% a year"?
> Somehow I don't think such a slogan would drum up much business. So
> the global investment houses, just like McDonalds, have figured out a
> way to sell you something else instead. Because they are not
> interested in trying to earn more than 6% to 10% a year for you, and
> this concept could never be sold as a dream, they sell you trust, and
> in the case of a post 9-11 America, sometimes even shamelessly sell
> national pride. Just look at some of the slogans they have used.
> Prudential. "Growing and Protecting Your Wealth". Merrill Lynch.
> "We're bullish on America". And Goldman Sachs: "We Stress Teamwork in
> Everything We Do."
> The message has always been, "Trust us, because we know what we're doing.
> Since
> we're the authorities, if we can't earn you more than 6% to 10% a
> year, then you certainly won't be able to do any better on your own."
> And in the case of Merrill Lynch's slogan of "We're Bullish on
> America", if that's true, I'd like to take a look at their CEO's stock
> portfolio in mid-2006 and see exactly how much of his portfolio is
> allocated to the U.S. stock markets. If you so desire, you can trust
> them right down the path of mediocrity when it comes to performance.
> A simple way to determine what is the core of a company's mission is
> not to read their mission statement, but to observe what companies
> spend all their time and money doing.
> McDonald's spends all their time and money building new restaurants.
> Conclusion: McDonald's #1 goal is to sell as much real estate as
> possible through selling what enables their tenants to pay rent - fast food.
> Nike spends the lion's share of their budget on marketing.
> Conclusion: Nike's #1 goal is to brand itself as the "it" brand to own.
> Global investment firms spend all their time and money training their
> financial consultants how to gather more assets.
> Conclusion: Global investment firms' #1 goal is to gather as many
> assets as they can, not to maximize the returns of your portfolio.
> If you really are skeptical of this, just call up you financial
> consultant and ask him (or her) how he spends all of his time every
> day. Ask him (or her) to describe an average day to you and calculate
> how much of every day is actually spent in activities that will
> maximize the return of your portfolio versus how much of every day is
> spent in activities that will maximize the amount of additional assets
> gathered for the firm. And therein lies your answer.
> --
> J.S. Kim
> Managing Director
> SmartKnowledgeUT

Mr. John Kim's website is Http:// Here is his active blog:
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