Naked Brands are a new kind of brand — enabled by social media, powered by personality, and built for the digital age:
Naked Brands are transparent.
Naked Brands are founded by social media influencers.
Naked Brands prize on-going communication with fans and customers.
This book project requires an extensive research process. I plan to conduct many interviews with writers, influencers, and entrepreneurs. The interviews will all be public and will live right here on my website. We'll go on this journey together — you and me. Together, we'll cross industries, speak with experts around the world, and explore the past, present, and future of Naked Brands.
If you have ideas or feedback, please send them my way. You can find my contact information here. I look forward to hearing from you.
I'm kicking off the Naked Brands interview series with one of my favorite writers, Morgan Housel. Morgan is a partner at Collaborative Fund, a brilliant writer, and as I learned first hand, an excellent podcast guest!
In this interview, Morgan and I discuss how the internet shapes consumer values, the power of shows like Chef's Table, the sudden rise of Vanguard, under-reported insights from Warren Buffett and Howard Marks, and the ideas that drive Morgan's writing.
You can keep up with the series by subscribing to my “Monday Musings” newsletter.
Thank you for reading!
David: Morgan, thanks for coming on the Naked Brands Interview Series.
I love what you've said about the importance of building trust and values in the internet age. How do you see this shifting between the Millennial generation and people like me who are internet natives?
Morgan: Yeah, I would say I would say a big trend started with my generation, which is that we more or less grew up with access to a lot of information. An order of magnitude more information than my parents. I think if you go back a couple hundred years, every generation has had marginally more information than the generation that came before them, whether that was starting with books, and then telegrams, and then widespread newspapers, and telephone, and TV, and radio, on and on and on.
But then information access took a quantum leap with the internet. I more or less grew up with the Internet. I started using the internet when I was an early teenager at pretty much the same time that I started using computers. I grew up with the idea that information is out there if you look for it and that information should be free and readily available. That expectation represents a big shift between people like me and baby boomers like my parents.
Internet natives like yourself also grew up with the internet, but it was an order of magnitude better than it was when I grew up. So you probably have even more of a sense of (a) that information is out there if you look for it and (b) if it's not out there, like if a company is trying to hide it from you, that in itself said something.
So I think it's just how we've grown up and the expectations that we have open access to Internet that has been this paradigm change. And companies that get that, it's not necessarily that they are more open and transparent with their data, although that is a point. It's more along the lines of companies now realize that you can't get away with misbehavior like you used to in an era when information was hidden, so brands now know that customers really care about how they treat their employees, how they treat their suppliers, what their products are made of, and where those ingredients or resources are sourced from.
Stuff that has always been important, I truly think it's an order of magnitude more important now than it used to be. I'll give you an example of that.
Vanguard was started in 1975. Vanguard more or less plotted along slowly for another 20 years, and by the 1990s, Vanguard had several billion dollars in assets under management. But it was not a game changer in the slightest until about 15 years ago. And then it just went exponential. Vanguard just took off. Even if you're looking at it like a chart, like in log form, like 15 years ago, something just clicked and all of a sudden more money to started flowing into Vanguard.
David: How do you explain the sudden rise of Vanguard?
Morgan: It wasn't like Vanguard was a new startup and as soon as it was on the scene people like, oh, this is great. Vanguard had a quarter of a century of people who were like "oh yeah that's interesting but I'm happy in my mutual fund over here." And I think to answer that question, why did that happen is really complicated. It's not just like one thing that happened. But something I think a lot about is that the average investor just has so much more access to information and commentary and being able to talk to other investors and compare fees than they did 25 years ago and as soon as the ability to compare fees, talk with other investors. You have people on the Internet like Josh Brown and Barry Ritholtz, that are sharing information and telling you what to do. As soon as that open access to information happened, people were like, "I don't want this mutual fund. I want Vanguard."
And it was just like boom, trillions of dollars flowing in that direction. Now of course, I think there are many other variables in that story, but I think that is a big part of it.
David: You know, with Naked Brands, one thing that is so critical to this emerging trend is that people are essentially media companies now. Look at yourself. In the past year and a half, Collaborative Fund has gone put its name on the map and now if feels like everybody knows about the firm. Among people who know Collaborative Fund, it's crazy how many people find it through your writing and through podcasts like the one we recorded together. How do you think about brand building and how do you think about being a quasi-media company and the importance of people like yourself?
Morgan: It was Patrick O'Shaughnessy who said this, who by the way is another great example of someone who's following the Naked Brands ideas in a really effective way, but Patrick O'Shaughnessy said, you know the TV series Chef's Table?
David: Yep. Good show.
Morgan: Well, as you know, the show takes you behind the scenes. Usually, as a restaurant goer, all you ever see is the plate brought out to your table. But on Chef's Table restaurants show you what happens before the food comes to the table. They show you how they source their food and how they make it. That's what content is doing for the asset management business, and you can extend this to many other businesses as well. So many people have always had access to the product. What is the mutual fund? What are the returns?
Blogging is like a step behind the scenes. Here's how I think. Here's what I think about the world. Here is our process internally. Here's how we talk to each other internally. Here's how we debate each other. Here's what I think versus what this person thinks. Blogging is like the Chef's Table of asset management. And firms like Ritholtz Wealth Management and O'Shaughnessy Asset Management are selling trust in an oblique way that people don't realize.
Josh Brown is blogging every day, and if you read Michael Batnick, Barry Ritholtz, Ben Carlson, and Nick Maggiulli, you start forming a subconscious trust with them that you wouldn't have through other advisors. And there are others in the asset management business that are doing it too.
But that's always been the idea behind news anchors and sports broadcasters and what not. You know, the reason that Walter Cronkite or Tom Brokaw became trusted people is because you felt like you got to know them personally over time.
Walter Cronkite was like everyone's grandpa in the 1960 and people just trusted him. And I think that's, that's like the very early days of what more people are doing these days with blogs. But the big difference, of course, is that there was only one Walter Cronkite, whereas now there are dozens if not hundreds of respected finance bloggers. So it's the same thing that people have always been doing but it's way more scalable today.
David: What do you think it is about finance in particular that has made the Financial Twitter and blogging community thrive?
Morgan: I think money is just inherently very emotional. More so than many other topics. Like there could never be an active Twitter community around changing your oil, even though that's like a multi-billion dollar industry. Or like orthodontics, It just wouldn't happen because those are not emotional topics. Those are topics that are very important and those are both multibillion-dollar industries but there's no emotion attached to them
Whereas with Financial Twitter, I mean, the center of all investing is uncertainty. That's like the center of gravity that keeps all of this together is that we don't know what's going to happen next and that's one element. And then the second element is huge stakes. People's retirements and people's children's educations and their life savings are on the line here. So you combine uncertainty with huge stakes and people are just going to get really emotional about what's going on.
Pretty much the definition of a market is people disagreeing with each other. I'm buying and you're selling, and maybe we don't necessarily disagree. Maybe I'm young and you're old and the transaction makes sense, but the heart of most markets is that people disagree. I think this company is going to do well and you think it's gonna do really poorly and like, great. There's a buyer and a seller right there. But it also means that people just get really, really antagonized over over other people's views online. If you think hyperinflation is coming and I think interest rates are gonna fall, those are diametrically opposed views and so so it's natural that people want to debate each other.
And since most people in the Financial Twitter community are well educated, high-income people that don't have a lot of material adversity in their life, this is our tribal warfare. Three hundred years ago we all would have been chasing each other with swords and like chasing each other out of each other's villages. Now we just go on Twitter and this is how we scratch that itch of tribal warfare with each other.
David: Hahahaha! That's hilarious. Why engage in a sword fight when you can bicker about the future of passive vs. active investing on Twitter? Ok, I have to ask. What flipped the switch from full-on informational secrecy to people like Warren Buffett and Howard Marks writing letters to then, the floodgates opening now?
Morgan: I think Buffett and Marks were really the forerunners for all of this. They were not just giving their investors more information, but they were using their ability to communicate as a bridge towards trust. And that's really what it was. So many investors will say "Oh I went back and read Warren Buffet's letters to shareholders and they're so enlightening."
I think, for the most part, there's actually not that much technical information in there that most people didn't already know. If you have a finance background, you understand a free cash flow and value and margin of safety. You get all of that. But Buffett's letters instilled the sense of like subconscious trust. The way Buffett describes things gives you this view of: "Hey, you're not trying to screw me. You're not just like a stockbroker out there who's trying to skim something off the top. You're really doing this in a way that makes sense and in a way in which our values are aligned."
I think Howard Marks did the exact same thing. I don't even know if they did that on purpose. I think that is just an enduring part of both of their personalities that came out through their writing.
And while I'm on a side note, why have Buffett and Marks been successful? There are a lot of reasons. They're really smart people and they've been investing during a great era, but also they more or less had permanent capital because their investors trusted them. And because of that trust, all these other hedge fund managers and private equity managers that during a bear market, their investors would have said, "I don't trust you anymore. I'm out of here. Give me my money back."
But investors didn't do that for Buffett and they didn't do that for Marks, and that's a massive competitive advantage right there. So put all that together. Buffett and Marks used content to instill trust, trust gave them permanent capital, and permanent capital gave them a massive financial advantage over other investors.
That I think is probably an underreported story of Buffett. That is, how much his ability to do what he does depends on his ability to take a 20-year view and have cash available to deploy during downturns like 2008 and 2009. All of that is just stemmed from his ability to have permanent capital, which is a function of investors trusting him for the last 50 years.
David: That's really interesting. As you were speaking, I was reminded of a recent conversation that I had. I was interviewing a brilliant writer for my podcast recently and he said something that I can't stop thinking about. He said that as quality increases and ceases to be a differentiating factor between products, companies increasingly begin to sell identity. And he said that this is happening with religion. He said that religions which require a lot of commitment such as Mormonism are becoming more popular, in part because there aren't as many free riders and I don't know if that's true, but it's a provocative idea and I can't stop thinking about it.
Morgan: That's interesting. My intuition would have said exactly the opposite.
David: It's like so shocking that I still need a little bit more evidence. Anyways, as you think about the intersection of brand and identity, and study the future of brands like Outdoor Voices and Sweetgreen, where do you see identity-driven brands going?
Morgan: It's not just consumers but also employees and investors who want to be aligned with organizations whose values are the same as their own. It's just moving away from a work just being a place that you go to get your paycheck or a store as just a place to where you go and buy your food. Instead, people are saying that they want to align themselves with these companies and if they don't have the same values as them, then that's not something that they necessarily want to put up with.
I think the best in-your-face example of that in the last two years has been Uber versus Lyft. It's hard to think of any other product out there where the competitor's products are as identical as Uber and Lyft.
They're more identical than Coke or Pepsi or Bud Light and Miller Lite, but Uber and Lyft are exactly the same. It's usually the exact same drivers that are on both platforms. Even the user experience and design of the two apps looks almost exactly the same. But you have this massive shift in the last two years of customers navigate migrating from Uber towards Lyft. And it's not a little. It was like 15 percentage points of market share last year driven by the Delete Uber campaign.
As news started leaking out about Uber's internal culture, I think a lot of people just went, I don't want to be associated with that. I would rather be associated with this company Lyft over here. Not that Lyft is all rainbows and butterflies. angels. They're a gritty company as well, but a lot of people were saying, look, this is an identical product. I don't give up anything from a consumer standpoint. I don't have to give up any sort of functionality to switch over to Lyft. I'm going to get the same product and I like this company a little bit better. I like their values a little bit more.
That to me was like the perfect example of identity and it's like you couldn't have asked for a better example just because the products are identical. It's not like Chipotle and Taco bell where it's like I can see how those are the similar industry, but those are very different products. Uber and Lyft are like the perfect science experiment for this and it's been a massive shift away from Uber towards Lyft.
So that I think this is an example of what's going to happen more often. Consumers are looking for alternatives and saying, look, these products are more or less alike, but I like this company a little bit more and the companies that realize that that shift is happening will put a lot more emphasis into their brands, not just in their marketing but how they treat their employees, how they work with governments around the world. Just how they put themselves out in the world. And really what it is is aligning all the stakeholders in your organization rather than just your shareholders.
If you just line up all your stakeholders and say, okay, we have employees, we have suppliers, we have the community, we have governments, and we have shareholders too. We need to make sure that all of those buckets are more or less equally filled, because as soon as one is being filled more than others, as soon as one of those stakeholders is being ignored or taking advantage of, since we have more access to information, that news is going to get out that we're exploiting them. And then that's going to be a negative ding on our brand just like it was for Uber, and then over time, people are going to start navigating away from the brand.
David: What changed about the world to make having an identity be a part of a brand so important?
Morgan: I think it's kind of gets into one of your other ideas about how on social media, people don't want to follow a company. They want to follow people.
It's so much easier to fall in love with a person than a company. It's just so much more natural to love a person. And I think someone like Josh Brown. Even if you don't know him, you can picture yourself having a beer with him, in a way that you cannot do with Goldman Sachs.
And I think that's really what it is. But you hit the nail on the head that for a lot of companies, their company's social media profile is basically just used as customer support. Like "Hey United Airlines, my flight's delayed, how can I get a refund?"
Whereas you have, you have individuals out there that are really driving the company's brand. A lot of companies have always done this. Going back to the 1990s, you had Abby Joseph Cohen for Goldman Sachs. People were going on CNBC and she was the public face of Goldman Sachs. I mean she was really big in the 1990s dot-com boom. And she was a household name in the 1990s. People would come home from work and be like, oh, did you see Abby Joseph Cohen on TV? She thinks the market's going to go up 20 percent this year.
So companies have always had that. It used to be people going on TV or going on the Sunday talk shows, and that kind of thing. But it's just multiple orders of magnitude more scalable now than it was back then.
David: Just look at Kylie Jenner.
Morgan: Right! Why is she so successful doing what she's done? I think it's because people look at her and say, I want to be you in a way they obviously cannot do for a company. So it's not that they look at Kylie Jenner's lip gloss or whatever she's selling and say like, oh, that looks great on you. It's them thinking that would look great on me.
And I think that is an important thing that people can do, that companies cannot. And I think that's true for investors as well. Like if you hear Michael Batnick talk or Michael Batnick write, I think it's easy to say I want to invest like you. I want to be able to think like you. I want to be in your court. You cannot do that for Merrill Lynch as a brand. It's the ability to look in the mirror and say that's who I want to be and you can do that for a person, but you can't do it for a company.
David: Totally. I think we both agree that on social media people want to follow people. They don't want to follow companies, But I do think that in terms of building Naked Brands style companies, there's a risk there, right? If something happens to a big personality, it will negatively impact the entire company. How would you think about diversification and reducing risk without minimizing your upside for reward?
Morgan: I would say even more likely scenario then you know, someone getting hit by a bus, God forbid, is that most people own their own. They own their personal twitter accounts. Those are not the property of the companies and they can just get up and walk away and join someone else and take that distribution channel with them. And I don't know if there is a solution for the company other than realizing that people that have brand influence have way more power then companies might think so, and they should treat those employees and compensate them compensate them accordingly.
I think a lot of companies do get that, but a lot of other people might be like, oh, you have some twitter followers, but what does that do for us? How is that? How is that driving our bottom line? What twitter followers have to do with anything? Well, influence and attention are everything. Even though they're hard to quantify, and may be hard to like directly monetize, they meet a lot, and once that person walks out the door that might be the moment that you realize how powerful that person was.
David: I was talking to Sara Dietschy, who is one of my favorite YouTubers and she said that what she tries to do is to do a combination of educating and entertaining. If there's too much without the entertainment, people get bored and people don't watch in their free time. If there's too much entertainment without education, it is great for a quick dopamine rush, but it doesn't get people to stick. How do you think about the tradeoff between education and entertainment and what are some of the things that drive your own content creation strategy?
Morgan: This is different for everyone depending on who their target audience is. But for me, I think that most readers just want to think differently and of course, they want to be entertained, but what they really want is just intellectual buzz. At least that's kind of what I'm going for and it seems kind of like that's what you're going for as well.
Morgan: You're not trying to make someone laugh and you're not trying to put a funny video out there. You want their brain to start buzzing a little bit. That's what you're going after.
David: Right. I like that.
Morgan: I've always thought that there's a different couple ways of writing. You can give someone information that they didn't have before, but that's really difficult to do because companies like Reuters and Bloomberg are going to have better information and deliver it faster than you. The second is to take that information and have an opinion about it. And that's interesting but it's not that useful for people. But the third type is the type that I think more people should focus on is changing how people think. Take what information is out there and add context to it. Say, look, this isn't necessarily my opinion and this is not new information, but here's what's going on in the world. Have you thought about it in this different way?
Morgan: And I think if you do that effectively, that is entertaining because it provides intellectual buzz for you. So that's how I would think about it. It's not new information and it's not trying to be funny. It's just trying to say, hey, here's something that you already know that you've already been thinking about for a long time, but have you thought about it with this lens put over it? Have you thought about it in this context? Have you thought about how Topic A relates to Topic B, which is all intertwined with Topic C? That's the kind of thing that I think people find "entertaining" at least for the field that we're in. And that's what I think about for writing.
David: I think of a post of yours like The Shallow Benefit of Deep Liquidity because before I read that post, I didn't even have the vocabulary to think through those concepts and that post is like a key to a new kingdom of thinking and a deep well of ideas.
Morgan: That's cool. Thank you. That's awesome to hear. Let's take that post and back up. I didn't do any primary research for that article. There is no new information un there that's no available to everybody else. It's not a funny post, but hopefully just gave you a little bit of intellectual buzz. Like, Hey, I've never thought about it this way. That's cool. That's how I think about the entertainment versus information tradeoff in articles.
David: Awesome. Well, thank you, Morgan. The Naked Brands interview series is officially underway so thank you for launching it here with me.
Morgan: Thank you David. This has been fun.